Recently, two important variables have had a profound impact on the market.
The first is the implementation of the interest rate cut policy, and the second is the dynamics of early voting in Pennsylvania, USA. Fed Chairman Powell is undoubtedly a master of expectation management, and he has a precise grasp of the market pulse. In this interest rate cut event, Powell has two core goals: one is to smoothly start the interest rate cut process, and the other is to avoid the market from falling into the expectation of recession.
If it were not for Powell's careful management, the market discussion would be limited to the two options of "interest rate cut" and "no interest rate cut". Although interest rate cuts are naturally beneficial to the market, each interest rate cut will cause large market fluctuations, and the stock market will fall soon, making the market worried about the upcoming recession. However, the current market discussion has shifted from simply whether to cut interest rates or not to the specific interest rate cut range - 25bp, 50bp, and even some voices have proposed 75bp. Among them, the option of "no interest rate cut" has been gradually excluded by the market. If the interest rate cut is 25bp, the market will not be overly worried about the arrival of a recession; if the interest rate cut reaches 50bp, it may be interpreted as a signal of economic recession. Based on this logic, it is highly likely that the interest rate cut will be 25bp. As for 50bp or 75bp, it is more like a strategic means of expectation management.
For the market, the specific extent of the interest rate cut is not the most important. What is important is the significance of the act of "starting the interest rate cut". As the leader of the global central banks, once the Federal Reserve starts to cut interest rates, it means that the global market will enter a loose cycle, and other countries will be more confident to follow up on the interest rate cut policy. For the market, what we most expect is to be able to smoothly cut interest rates by 25bp to achieve a steady rise and bring a healthier market environment.
On the other hand, early voting in Pennsylvania is also an important factor affecting the short-term market. Trump called on everyone to participate in the vote on social media, and the voting in Pennsylvania ended on October 21. During this period, relevant news will come out from time to time, which will also have a certain impact on the market. Investors can pay attention to relevant developments to better grasp the market trend.
