HONG KONG: Stock markets advanced on Tuesday (Aug 5) as growing investor confidence in a potential interest rate cut by the Federal Reserve next month outweighed concerns over the U.S. economy and fresh tariff threats from Donald Trump.
The positive momentum followed a strong rebound on Wall Street, where traders regained their footing after Friday’s sharp decline triggered by weaker-than-expected U.S. job data for July and significant downward revisions to figures from the previous two months.
The jobs data heightened concerns that the world’s largest economy may be weaker than anticipated, but it also fueled speculation that the Federal Reserve will cut interest rates in September. According to Bloomberg, markets are now pricing in a roughly 95% chance of a 25-basis-point reduction.
Some analysts are even suggesting the Fed could opt for a more aggressive move—possibly doubling the cut to 50 basis points.
“The narrative flipped fast: soft jobs data means a soft Fed, and a soft Fed signals a risk-on environment,” said Stephen Innes of SPI Asset Management.
However, he cautioned that “if rate cuts are being considered because the labour market is shifting from ‘cooling’ to ‘cracking,’ we may be edging closer to danger than we’d like to admit.”
He continued, “This tension—between rate cuts as economic stimulus and cuts as a distress signal—is now front and centre.
“If the Fed acts proactively to cushion markets from the dual impact of tariffs and a weakening labour market, the equity rally could continue. But if policymakers are responding to a downturn already gaining momentum, the runway for markets could shorten fast.”
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