Chinese Assets Surge as Fed Sends Powerful Signal

On the evening of July 9, Beijing time, Jerome Powell, the Chair of the Federal Reserve, delivered his semi-annual monetary policy testimony to the U.SSenate, where he was interrogated on various issues including monetary policy and banking regulationDuring the hearing, Powell noted that inflation in the United States has significantly slowed but remains above the long-term target of 2%. Recent data on inflation indicates “moderate” progress towards achieving this target, affirming the Federal Reserve's steadfast commitment to maintaining a stable long-term inflation expectation at 2%.

In terms of prices, although the inflation rate has evidently decreased, it still exceeds the long-term goal of 2%. Over the twelve months leading up to May, the Personal Consumption Expenditures (PCE) price index rose by 2.6%, while the core PCE price index, which excludes volatile food and energy prices, also saw a 2.6% increase

Powell believes that long-term inflation expectations appear to remain stable, as reflected in comprehensive surveys of households, businesses, and forecasters, as well as benchmarks from the financial markets.

Regarding monetary policy, Powell stated that it would be inappropriate to lower the target range for the federal funds rate until there is sufficient confidence that inflation can stabilize at 2%. Indicators from the first quarter of this year do not support such confidence; however, recent inflation data show some mild progress, and more favorable results would bolster the Federal Reserve’s assurance that inflation can sustainably approach the 2% target.

Powell strongly emphasized that premature or excessive easing of policy could hinder or even reverse the progress the Federal Reserve has made in controlling inflation

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Furthermore, considering the advancements made in the past two years in reducing inflation and cooling the labor market, he noted that high inflation is not the only risk facing the U.SeconomyDelaying or insufficiently easing policy might excessively weaken economic activity and employmentThus, in assessing any adjustments to the federal funds rate target range, the Federal Reserve will continue to carefully evaluate forthcoming data and its implications for the evolving economic outlook, risk balance, and the appropriate trajectory for monetary policy.

Nick Timiraos, often referred to as the “Fed whisperer,” commented that Powell made very little change regarding expectations about when the central bank might start cutting rates.

In response to this testimony, Yelena Shulyatyeva, a senior economist at BNP Paribas, stated: “If the unemployment rate rises again in July, it might challenge our baseline expectation for a rate cut once in December this year, or increase the chances of two rate cuts starting in September.”

Nancy Vanden Houten, chief U.S

economist at Oxford Economics, noted in a report that “Federal Reserve officials are increasingly focused on the downside risks in the labor market, and the data from June supports our forecast for the Fed to cut rates in September and during each subsequent meeting.”

Goldman Sachs Asset Management suggested that the Federal Reserve is “close” to making its first rate cut.

On the following day in the stock market, the three major U.Sindices showed mixed resultsAccording to Wind data, the Dow Jones Industrial Average fell by 0.13%, while the S&P 500 index rose by 0.07%, and the Nasdaq increased by 0.14%. Notably, both the S&P 500 and Nasdaq recorded their sixth consecutive day of gains, continuing to set new closing highs.

Bank stocks collectively rose, with Citigroup increasing over 2%, and JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, and Wells Fargo each gaining more than 1%.

Chinese concept stocks also experienced a widespread increase

The Nasdaq China Golden Dragon Index rose by 2.39%, surpassing the crucial 5900-point levelNIO surged over 68%, Lufax Holdings gained over 16%, Baidu climbed over 8%, while Zhiyuan Group and Kingsoft Cloud increased over 7%. In contrast, Bitdeer dropped over 9%, and Shine Microelectronics fell over 4%. Among Chinese electric vehicle stocks, NIO rose more than 1%, while XPeng gained 0.87%, and Li Auto fell 0.35%.

As for the U.S“tech giants”, most saw an increaseApple rose 0.38%, marking its sixth consecutive day of gains and setting a historic intraday high of $229.395, with a total market capitalization of $3.506 trillion, making it the largest company on the U.Sstock market.

Microsoft declined by 1.44%, continuing its retreat from previous highs, with a current total market value of $3.415 trillion, the second largest in the U.S

market; Nvidia rose by 2.48%, hitting an intraday increase of over 4%, currently holding a total market value of $3.231 trillion, making it the third largest.

Tesla increased by 3.71% to achieve a "ten-day gain," with its stock price hitting a new high since mid-October 2023. Meta rose slightly by 0.13%, while Alphabet’s Class A shares dropped 0.03%, although it reached an intraday high of $191.36. Amazon marginally increased by 0.03%, and its total market value reached $2.0745 trillion.

In the commodities market, most international precious metals saw a riseLondon spot gold rose by 0.22% to $2363.77 per ounce, while London spot silver reported $30.782 per ounce, a slight drop of 0.03%. COMEX gold futures increased by 0.32% to $2371.1 per ounce, whereas COMEX silver futures rose by 0.56% to $31.085 per ounce.