"The time for policy adjustment has arrived." At the Jackson Hole Global Central Bank Annual Meeting held on August 23rd Eastern Time, Powell sent the most explicit signal for a rate cut to date, and currently, it is a widely accepted consensus among investors that the Federal Reserve will start cutting rates in September. What profound impacts will the Federal Reserve's rate cut have on the global capital market? Let's first look at Europe.

Several officials from the European Central Bank's (ECB) Governing Council also hinted at further rate-cutting actions in September during the annual meeting. How likely is a rate cut by the ECB in September? Has the European stock market ushered in an opportunity window? Let's listen to the analysis by Chu Xiao, a researcher at the Bank of China.

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A good opportunity to reassess the ECB's monetary policy has emerged.

Chu Xiao: The ECB cut rates by 25 basis points for the first time in June and remained on hold in July. In the latest meeting minutes, ECB officials downplayed concerns that inflation might continue to rise and were open to a rate cut in September, which is seen as a good opportunity to reassess the limits of monetary policy.

Looking at the economic data of the Eurozone, the core inflation rate excluding food and energy was 2.9% in July, unchanged from May and June. The service sector inflation rate slightly decreased from 4.1% in June to 4%. The Eurozone economy continues to be sluggish, with the manufacturing PMI in August falling to the lowest in eight months, strengthening the rationale for the ECB to discuss interest rates at the September monetary policy meeting. It will still be necessary to continue monitoring the Eurozone's economic sentiment index, unemployment rate, and other economic and inflation data to see if they can further support a rate cut by the ECB in September.

European stocks may grow amidst cautious trading.

Chu Xiao: For European stocks, the Jackson Hole Global Central Bank Annual Meeting has led the market to receive a clearer signal for a rate cut. The "dove's voice" has propelled the main European stock indices to continue their upward trend, and the prospect of a rate cut by the ECB in September will be beneficial for the capital market in the short term. However, due to the uncertainty of recent market volatility and investors' concerns about Europe's economic growth, European stocks may grow amidst cautious trading in the future.

Japanese and Korean stock markets slightly decline.

Let's now look at the Asia-Pacific market. On August 26th, the main stock indices in the Asia-Pacific region closed with mixed results. Among them, the Japanese and Korean stock markets experienced a slight downward trend.

Bank of Japan Governor Haruhiko Kuroda stated on August 23rd during a hearing at the Japanese Diet that if Japan's inflation and economic data continue to align with the central bank's expectations, the possibility of further rate hikes in the future is not ruled out.How should we view the overall trend of Japanese and Korean stock markets? As the interest rate differential between the United States and Japan narrows, how will the capital market continue to fluctuate? Wang Xinjie, Chief Investment Strategist at Standard Chartered China's Wealth Management Department, shares his insights with us.

Asia-Pacific stock markets may perform well

Wang Xinjie: Recently, the Japanese and South Korean stock markets have returned to a narrow range of fluctuations, and overall, they have recouped the losses from the sharp drop at the beginning of the month. Looking at the monthly chart, this recovery process is accompanied by a long lower shadow line, indicating that the panic sentiment triggered by macroeconomic data and the unexpected interest rate hike in the yen has been significantly resolved.

After the conclusion of the Jackson Hole Global Central Bank Annual Meeting, the market's expectation that the Federal Reserve will start cutting interest rates in September and cut 100 basis points within the year has strengthened. Affected by this, the market sentiment will continue to support risk assets, and it is expected that the Asia-Pacific stock markets will also perform well.

However, in the overall trend, it is still necessary to pay attention to some potential disruptive factors. For example, whether the Federal Reserve will cut interest rates also depends on whether inflation will fall as expected, and whether the job market will experience an unexpected sharp decline.

The Bank of Japan has digested short-term disruptive factors

Wang Xinjie: One of the market's focuses is the monetary policy of the Bank of Japan, which is also one of the reasons for the market's sharp drop at the beginning of August. However, there is still an expectation that the Bank of Japan will further raise interest rates.

From the perspective of the interest rate market, the Bank of Japan still has about 10 basis points of room to raise interest rates before the end of the year. In addition, the market generally expects that there may be a 10 to 15 basis point interest rate hike before the end of the year.

For the Bank of Japan, the main short-term risk disruptive factors lie in the judgment of market sentiment, and these sentiments have been more significantly digested in the past period.

For the future market, the Bank of Japan will consider inflation and the performance of the Japanese economy more, and the impact of the exchange rate market is relatively small. Especially when the yen has already rebounded, it will be less disturbed by the exchange rate level.The Bank of Japan's monetary policy will increasingly depend on domestic factors, including market expectations. We believe that a 15 basis point rate hike before the end of the year remains feasible.

SSE Composite and SZSE Component Index close slightly higher

In China, influenced by the expectations of a Federal Reserve rate cut, the SSE Composite and SZSE Component Index closed slightly higher. What benefits and risks will the Federal Reserve's rate cut bring to A-shares? How will the A-share market evolve in the future? Let's listen to the interpretation from Zhang Chi, the chief analyst at Guojin Strategy.

Federal Reserve rate cut brings overseas risks

Zhang Chi: Powell stated at the Jackson Hole Global Central Bank Annual Meeting, "The time for policy adjustment has come," implying that a rate cut in September is almost certain.

For the A-share market, this year's depreciation pressure on the Chinese yuan is second only to that of 2015, with a significant premium appearing when the spot exchange rate is subtracted from the Chinese yuan's midpoint rate. However, as U.S. economic data begins to weaken, the premium is noticeably narrowing, indicating a reduction in depreciation pressure.

China should implement a rate cut in August, and we have always emphasized the necessity, urgency, and feasibility of a Chinese rate cut.

Looking at the necessity of a rate cut in China, on the asset side, including corporate profits, residents' salaries, and employment, the fastest recovery is forecasted for the first half of next year. This is because the bottom of profits can only be seen in a new recovery period, and residents' salaries and employment are after the bottom of profits (before recovery). Therefore, it is difficult for the asset side to recover in the short term and can only be adjusted on the liability side. From the liability side, by reducing the existing loan interest rates for residents, it encourages consumer spending and keeps real estate risks controllable. As the willingness of enterprises to invest in production gradually picks up, the market can bottom out, so a rate cut is necessary.

Considering the urgency of a rate cut, once the U.S. begins to cut rates, the underlying logic is a decline in global prosperity (level). If the future intensity of U.S. rate cuts is significant, it essentially means that the U.S. has achieved a "hard landing."

From these perspectives, after the U.S. rate cut, China's exports may further weaken. As overseas risks continue to intensify, the downward pressure on China's exports may increase.A-Share Rebound May Last for a Quarter

Zhang Chi: If domestic interest rate cuts are delayed, the cost of hedging risks in the future may continue to rise.

As overseas risks intensify, the pressure on China's exports will increase, which may lead to a decline in China's wage and employment levels. Correspondingly, the asset side may accelerate its downward trend, and the liability side, in order to hedge the extent of the asset side's decline, will have higher demands.

Therefore, if domestic interest rate cuts are not implemented in August, the intensity of the cuts in September may need to be greater, such as more than 50 basis points. In addition, interest rate cuts should be carried out before China's exports show obvious risks. If there are obvious risks in China's exports, the actual rate of return for businesses is likely to turn negative, and the intensity, requirements, and effectiveness of interest rate cuts will be greatly reduced. Therefore, September is actually the last window for interest rate cuts, and the intensity of the cuts needs to be greater.

If China follows the Federal Reserve's interest rate cut in September, and the intensity of the cut is more than 50 basis points, it may lead to a rebound in domestic credit. With interest rate cuts overseas as well, domestic fundamentals are expected to improve, and the A-share market may be able to break away from the trend and may rebound. On the contrary, if the fundamentals of the A-share market enter a downward phase again during the overseas interest rate cuts, the performance of the A-share market may fall again.

We expect the sustainability of the A-share market rebound to be about a quarter.