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New Fed News Agency: The Fed is unlikely to seriously discuss interest rate cuts "this week and in the coming months"

After raising interest rates at the fastest rate in 40 years, inflation in the United States is cooling faster than the market imagined. The biggest question now is, when can the Fed start to cut interest rates? It is almost certain that the Fed will not cut interest rates at its last meeting this week. CME Fed observation tools show that the Fed has a 98.4% possibility to keep the interest rate at 5.25%-5.5% at this meeting. In addition, Nick Timiraos, a well-known financial journalist known as the "New Federal Reserve News Agency", also pointed out in his latest article: Fed officials are unlikely to have a serious discussion on when to cut interest rates this week, and unless the economic weakness exceeds expectations, it will be impossible in the coming months. Timiraos believes that the Fed can only start to cut interest rates in two situations, one is when the economy continues to slow down and the unemployment rate rises faster than expected, and the other is when the economy performs well but inflation cools down more than expected. This week, Powell will face great challenges. Timiraos stressed that the Fed is facing a difficult balance: On the one hand, if the Fed relaxes its policy too slowly, the economy will eventually collapse under the pressure of rising interest rates, resulting in millions of people losing their jobs; On the other hand, if the policy is relaxed too early, considering that the current inflation is stable above 3%, which is still higher than the central bank's target of 2%, the war against inflation in the past year and a half may fall short. Some analysts also pointed out that the challenge Powell faced this week was that the financial market did not believe his warning about further tightening monetary policy. Investors believe that the economic slowdown is enough to eliminate the need for further interest rate hikes. In addition, they are convinced that the upcoming economic data will force the Fed to cut interest rates earlier than expected. This idea has led to a sharp decline in the yield of US bonds in recent weeks, and the financial situation has been relaxed, which has caused people to worry that some of the work that the Fed originally did to curb demand is being weakened. Two interest rate cut prospects Timiraos believes that the Fed may consider whether and when to cut interest rates in two situations, one is to cut interest rates when the economy continues to slow down and the unemployment rate rises faster than expected, and the other is to cut interest rates when the economy performs well but inflation cools down more than expected. The first scenario is that the Fed will cut interest rates when the economy slows down and the unemployment rate rises faster than expected. In an interview with the media last month, Chicago Fed President Gource said that if the unemployment rate starts to rise in a way consistent with the past economic recession, "we will start policy normalization". The second prospect is that even if the economy performs well, the Fed will cut interest rates because the monthly inflation rate data has returned to a low level close to that before the epidemic. In the process of falling inflation, keeping interest rates stable will push up real interest rates, which the Fed does not want. Therefore, the Federal Reserve can lower the nominal interest rate to keep the real interest rate at a stable level. It is worth noting that Warren, a hawkish and governor of the Federal Reserve, recently changed his attitude, saying that if inflation is particularly good, the Fed can theoretically start to cut interest rates next spring, which has fueled investors' optimism about the Fed's interest rate cut. Waller said: If we see this (low) inflation last for several months, I don't know how long it may last, three months, four months, five months? We may be confident that inflation will indeed fall. He said that the reason for cutting interest rates in this case "has nothing to do with trying to save the economy or recession". Timiraos believes that Fed officials have been reluctant to openly discuss the issue of interest rate cuts because they are worried that Wall Street will take the lead and the predicted rate cut is too exaggerated. This reaction itself may reduce the cost of borrowing, making it more difficult for the Fed to end the war on inflation by slowing economic growth. Rosengren, president of the Boston Fed, said earlier that if inflation continues to decline along the current path, the Fed may start to cut interest rates as early as the second quarter of next year. How difficult is the last mile? Timiraos pointed out that most of the differences about when the Fed should cut interest rates stem from the question of whether inflation will continue to fall. According to pessimistic analysis, since the sequela of the epidemic and the shortage of workers have been alleviated, it is much more difficult to reduce the inflation rate from the current 3% to the Fed's 2% than to reduce the inflation rate from the high point of 7.1% last year to 3% in October this year. They worry that the "last mile" to reduce inflation will need to create more idle funds in the economy, such as unemployed workers or idle factories, which will almost lead to the Fed's austerity policy will last for too long. "Given the lag in the operation of monetary policy, it does make it possible for us to tighten excessively. I don't know how to avoid this, "Minneapolis Fed President Kashkali said in an interview last month. Optimistic analysts believe that the "last mile" will not be particularly difficult. Goolsbee said earlier this month that "there is no evidence that our inflation rate has stagnated at 3%". One reason is that rent growth has slowed down significantly in the past year. Due to the way government agencies calculate housing costs, these declines will gradually penetrate into the official inflation indicators. Media models show that cooling rents may reduce the core inflation rate to 2.1% by the end of next year. Note that housing costs are the main driver of inflation in the past two years. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

American debt: America will decline! Us stocks: us soft landing! Who do you trust?

The trend of U.S. debt and U.S. stocks are sending diametrically opposite signals, and the macroeconomic outlook of the United States in 2024 is becoming more and more confusing. On the one hand, the typical warning signal of economic recession that the yield curve of US bonds is upside down has been going on for more than a year, and the futures market has been betting that the Fed will cut interest rates by 130 basis points next year. In a report released on Thursday, Goldman Sachs commented that if there is such a large rate cut, it is not like an "adjustment rate cut" to reflect the slowdown in inflation, but more like a "recession rate cut". The stock market presents a different landscape. The Nasdaq has rebounded by 13% from its low point in October, and cyclical stocks have outperformed defensive stocks. Stock market investors obviously don't believe that the US economy will fall into recession. Goldman Sachs is cautious about the prospect of US stocks. The bank pointed out that the Fed's interest rate cut would not exceed 75 basis points if the economic growth did not slow down more sharply, and suggested that investors should hedge against the market correction. The analyst wrote: On the market side, we have pointed out two important challenges in transforming our benign macro-view into a sustainable and positive market prospect. The first is the valuation, because market pricing is closer to our benign view than consensus; Secondly, given that we are more optimistic about US economic growth, the Fed may delay to cut interest rates. These two challenges have once again become the focus, making the market more vulnerable to negative factors. The market will soon further tend to price our more benign views. Although we expect that the weak version of "Fed's water release" may support the market, this support is conditional on weak growth, which is not obvious at present. These are not reasons for us to turn to cautious views or short positions, but they prove that we should take advantage of the current low level of stock volatility to increase hedging, so that investors can continue to do more or increase risks during the callback. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

One-sided debt, the market is careful to hit the face.

Ven Ram, a cross-asset strategist at Bloomberg, said that from the current market situation, investors are more willing to buy bonds than stocks, and this preference has reached a 20-year high. Ven Ram said that this optimism is not without reason: since the end of last year, the overall inflation rate in the United States has dropped from 6.5% to half. The Fed's preferred inflation indicator, such as the core PCE (Personal Consumption Expenditure), is currently 3.5%, lower than its forecast of 3.7% at the end of the year. Therefore, the market predicts that the Federal Reserve may cut its benchmark interest rate by as much as 125 basis points by the end of 2024. Moreover, the US economy is still resilient, and the neutral interest rate (that is, the ideal policy level that neither stimulates inflation nor inhibits the labor market) may have risen after the epidemic. Therefore, if the neutral interest rate is indeed high, it may prevent the Fed from relaxing its policy too quickly, and even if inflation slows down, it is unlikely that the Fed will cut interest rates significantly. The economic situation may also be much better than policy makers estimated. The actual performance of the US economy is far better than the Federal Reserve's forecast for 2023 at this time last year (when it was predicted to grow by 0.5%), and the current forecast has been raised to 2.1%. Next year, the Fed forecasts growth of 1.5%, slightly lower than its long-term growth forecast of 1.8%. The Fed also believes that in order to achieve a balanced labor market, the unemployment rate needs to rise from the current 3.9% to 4.1%. Risk warning and exemption clause

After Goldman Sachs, the world's largest asset manager also issued a warning: the market's expectation of the Fed's interest rate cut is "overdone"

At present, the market generally expects the Fed to cut interest rates by at least 100 basis points next year, starting from the second quarter. But BlackRock, the world's largest asset management company, believes that these bets are "overdone". BlackRock strategists said on Tuesday that the global market will experience greater volatility in 2024 because the Fed will cut its benchmark interest rate less than many investors expected. "In our view, the market's expectation of interest rate cuts is a bit overdone," Wei Li, BlackRock's global chief investment strategist, said at a media roundtable. "To achieve such a path of interest rate cuts, (the economy) must have serious problems. Therefore, we do believe that the Fed may cut interest rates in the second half of next year, but compared with previous economic cycles and recessions, the number of interest rate cuts is much less. " According to CME's FedWatch tool, the market currently expects that the possibility of the US benchmark interest rate falling by more than 125 basis points before December next year is more than 50%. After there were signs that inflation in the United States was cooling down and the job market was weak, the yield of 10-year US Treasury bonds fell by more than 80 basis points in the past month, which pushed the US stock market to rebound. The S&P 500 index hit a closing high in 2023 last week. The benchmark stock index has risen nearly 19% so far this year. It is worth noting that BlackRock is not the only financial institution that warns of "excessive interest rate cut expectations". Goldman Sachs pointed out a few days ago that the financial market expects the Fed to cut interest rates too much next year. The bank's economists only expect the Fed to cut interest rates once in 2024, most likely in the fourth quarter of next year. Opportunities exist in these areas. BlackRock is still optimistic about short-term treasury bonds and warns that rising structural inflation will make it difficult for long-term bond yields to fall sharply from the current level. The agency said that investors should be prepared to get more returns from the rate of return than from the appreciation. Kristy Akullian, a senior investment strategist at BlackRock, said that although the market's expectation for the Fed to cut interest rates may be too high, the central bank may have touched the peak interest rate, which makes fixed income more attractive as a whole. She also pointed out that the biggest risk now is to hold too much cash. In terms of stocks, BlackRock is optimistic about the opportunities of artificial intelligence stocks and technology stocks (especially the memory industry). The agency holds a small reduction in the overall US stock market, but is still optimistic about the sectors such as industry and health care. Tony DeSpirito, global chief investment officer of BlackRock's fundamental stocks, said that in 2024, the changing assumptions about interest rates may lead to a "windshield wiper market" (shock market), in which different industries will be favored or out of favor quickly. He is particularly optimistic about memory memory chip companies, which he believes will play a key role in the development of artificial intelligence. Among emerging markets, BlackRock is bullish on India and Mexico. The agency prefers emerging market assets to assets in developed markets.

Founder of MBMG: The Fed is out of touch with reality and must cut interest rates five times next year.

Paul Gambles, co-founder and managing partner of MBMG Group, said that the Fed needs to cut interest rates at least five times next year to avoid the US economy falling into recession. In an interview, Gambles said that the Fed is behind the curve in cutting interest rates. In order to avoid extreme and long-term monetary tightening cycles, it must cut interest rates at least five times in 2024 alone. "I think the Fed's policies are now out of touch with economic factors and reality. You can't assume when the Fed will wake up and start to smell the damage they actually do to the economy," Gambles warned. At present, the policy interest rate in the United States is 5.25%-5.50%, which is the highest level in 22 years. According to the data of CME Fed Observation Tool, traders now expect the Fed to cut interest rates by 25 basis points as early as March 2024. Federal Reserve Chairman Powell said yesterday: "It is still too early to declare victory over inflation." This has cooled the market's expectation of cutting interest rates next year. In his prepared speech, Powell said: "It is too early to conclude that we have taken enough restrictive stance, or to speculate when the policy may be relaxed." Recent data in the United States show that price pressure has eased, but Powell stressed that policymakers plan to "keep policy restrictions" until they are convinced that inflation is steadily returning to the central bank's 2% target. However, the financial market thought his remarks were dovish, which led to the major stock indexes on Wall Street hitting new highs, and the yield of US Treasury bonds fell sharply last Friday. The current view is that the Fed has actually raised interest rates. Does the market think the Fed has defeated inflation? The consumer price index (CPI) of the US Department of Labor, which measures a basket of commonly used goods and services, climbed 3.2% in October compared with the same period of last year, but it was the same as last month, boosting the hope that the aggressive interest rate hike cycle of the Federal Reserve began to lower inflation. David Roche, president and global strategist of Independent Strategy, said that unless energy or food has a major external impact on US inflation, it is "almost certain" that the Fed has ended raising interest rates, which means that the next interest rate adjustment will be to cut interest rates. Roche said, "I will stick to 3%, which I think has been reflected in many asset prices. I don't think we will reduce the inflation rate to 2% again. It is deeply embedded in the economy by all kinds of things. " "The Fed doesn't need to fight as fiercely as before. Therefore, the real inflation rate will be higher than before, rising from 2% to 3%, "Roche said. He correctly predicted the Asian financial crisis in 1997 and the global financial crisis in 2008. It remains to be seen what the interest rate plan of the Federal Reserve will be at its next meeting on December 13th and the last meeting of this year. Most market participants expect the central bank to keep interest rates unchanged.

Xu Zhengyu: Hong Kong financial center adheres to international characteristics.

Photo: Xu Zhengyu, Secretary for Financial Services and the Treasury, said that the scale of assets under management in Hong Kong's asset and wealth management business has been growing steadily. In recent months, there have been many posts on social platforms, describing the Hong Kong market as "the ruins of financial centers". Yesterday, the Secretary for Financial Services and the Treasury, Xu Zhengyu, published a blog titled "International Financial Center with Time-tested Experience", saying that Hong Kong's financial market has the characteristics of "internationality", "comprehensiveness" and "growth" and has become an "international financial center site", which is totally untenable. He continued that in the medium and long term, the opportunities faced by Hong Kong's financial market will definitely outweigh the challenges. The SAR Government, in conjunction with various regulatory agencies, will continue to promote the implementation of new policies, measures and projects, adhere to international characteristics, continue to finance Chinese and foreign capital, and add new impetus to the sustainable development of the market. Solid foundation and no fear of economic cycle fluctuations Xu Zhengyu pointed out that the uncertain global economic outlook, unstable geopolitical situation and the interest rate environment of "maintaining high interest rates for a long time" inevitably restricted the short-term performance of Hong Kong's financial market, especially the spot stock trading and IPO initial financing amount. However, Hong Kong's financial market is solid and resilient, and many businesses continue to record growth in the face of global turmoil. In the past, it went through different economic cycles, and now it is the same. He went on to say that international finance centre's status is not a tall building or a stone tablet, and pressure can make it fall. International finance centre's achievements depend on the unique status of "one country, two systems", the long-term efforts of the SAR government, regulators and the industry, and the reputation of international investors and financiers. The SAR Government has the confidence, confidence and ability to continuously build an international financial center with more depth and breadth. Xu Zhengyu also cited the data of Hong Kong's financial market as proof. For example, the total market value of the securities market was HK$ 30.8 trillion at the end of October this year, up 17% from HK$ 26.4 trillion in the same period last year. In terms of product development, thanks to the continuous growth of ETF southbound trading volume and a series of market microstructure reforms in recent years, the average daily turnover of exchange-traded funds in the first 10 months of this year reached HK$ 11.6 billion, up 25% year-on-year. In the derivatives market, the daily average number of contracts in the same period exceeded 1.35 million, up 7% year-on-year, which further reflected the strategic function of Hong Kong as a global risk management center. In terms of connectivity, the average daily turnover of bonds through Northbound Link in the first three quarters of this year reached 40.5 billion yuan, up 26% year-on-year, a record high. The target scope of Northbound Stock Connect was expanded in March this year, driving the average daily turnover in the second to third quarters of this year to exceed 113 billion yuan, an increase of 17% over the first quarter of this year. Financial management business is expected to rank first in the world. In terms of asset and wealth management business, Xu Zhengyu pointed out that in the long run, the scale of assets under management in Hong Kong's asset and wealth management business has been growing steadily, with an increase of 143% in the past 10 years. Recently, a credible market strategy research company pointed out that the average annual compound growth rate of assets under management in Hong Kong was 13% from 2017 to 2022, which was the highest among all business centers in the world. Hong Kong is also expected to become the largest business center in the world by 2025.

Foreign investors are optimistic about Hong Kong betting on Chuangke Finance.

AstraZeneca, the top ten pharmaceutical company in the world, set up a research and development center in Hong Kong, focusing on drug research and development such as cells and gene therapy. The Asian era has come and become the focus of the world economy and finance. As a window and gateway to the mainland, Hong Kong has an important role and position, and its international characteristics are particularly competitive in the world. At present, Hong Kong's economy focuses on finance, and with the gradual development of science and technology, its development prospects are limitless. In fact, Asia, including China, has become the main growth engine of the global economy. In the past 25 years, the Asian economy has grown at an average rate of 5.5%, maintaining a moderate and high-speed growth, accounting for two-thirds of the world economic growth. Asia's share in the global economy has increased significantly from 30% in 1998 to over 45% at present, and it is expected to exceed 50% soon. Asia is the main driving force and development opportunity of global economic growth, and international finance centre's position as a business hub will continue to benefit from the inflow of international funds into Asia. Silicon Valley enterprises plan to expand in Hong Kong. In addition to innovative technology, Hong Kong finance is also the focus of foreign bets, especially on the development of wealth management business. At present, Hong Kong is the largest international asset management center in Asia, the largest cross-border private wealth management center, hedge fund center and the second largest private equity fund center in Asia, and an ideal place for enterprises in the region to set up treasury centers. Hong Kong's financial advantages are constantly increasing, and it will have the opportunity to surpass Switzerland to become the first brother of global wealth management in the future. In fact, at present, the steady promotion of the virtual asset market trading center in Hong Kong can complement and promote the development of financial technology and wealth management business, because many family offices are more interested in investing in virtual assets, which greatly increases the incentive for their families to settle in Hong Kong. Virtual assets steadily push for license multiplication In short, foreign investment has maintained firm confidence in Hong Kong's economy, and the expected positive effects of grabbing talents and enterprises have gradually emerged, and the good momentum of supporting Hong Kong's economic recovery will continue into next year.

When this indicator reaches zero, the Fed may soon stop QT.

The analysis believes that we should pay attention to the trading volume of overnight RRP tools: when the trading volume drops to zero, it may indicate that the Fed needs to stop QT soon. Generally speaking, the quantitative tightening policy (QT) of the Federal Reserve will exhaust bank deposits, but in this tightening cycle, this situation has changed significantly, and the level of bank deposits is basically the same this year. The level of bank deposits has remained stable, indicating that the Fed has a long way to go before it stops shrinking its balance sheet. Some analysts pointed out the strange phenomenon in the QT process of the Federal Reserve: while the Federal Reserve steadily reduced the size of its bond portfolio, bank deposits did not decrease. Theoretically, QT should be a mechanical process. When the Fed buys bonds, it creates deposits, so when the Fed reduces its holdings of bonds, the deposits should be reduced. However, this did not happen. On the contrary, the liquidity came from the reverse repurchase instrument (RRP) of the Federal Reserve, that is, money market funds stored funds overnight. As Mark Cabana, an interest rate strategist at Bank of America, said, the problem is that banks are absorbing deposits at all costs. "Banks are bidding for liquidity," he told the media on Wednesday's conference call on bond market outlook. Cabana pointed out that in order to attract depositors away from money market funds, banks are offering higher-yielding cash products. For example, three-month and six-month certificates of deposit yield 5.6%, while if these deposits are placed in money market funds, the yield is only 5.4%. In other words, it is unprofitable for banks to hold these deposits. Then, banks will obviously lose money (at least in theory), so why should they hoard liquidity? Cabana attributed it to "the elephant in the room with more than $500 billion": the book loss of the bond portfolio. Bank of America itself is one of the banks with the most serious losses in this respect, with a book loss of $131 billion in the third quarter of its held-to-maturity securities. In addition, banks are encouraged to reduce their dependence on the lender of last resort, the Federal Housing Loan Bank. In a report on Wednesday, Cabana wrote that regulators gradually abandoned this quite popular source of funds, and with the bankruptcy of SVB and First Republic earlier this year, banks of all sizes became cautious in managing cash: Commercial banks still remember the crisis of regional bank failures earlier this year. Banks know that the best way to prevent similar fate is to hold a large amount of cash as a buffer. The recent regulatory guidance shows that we should not rely on the advance payment of the Federal Housing Loan Bank during the period of market pressure, which reduces the traditional financing sources of banks and may increase the cash buffer. The recent bank pressure and the decrease in available sources of funds have led to an increase in the cash buffer. Cabana said that although the Federal Reserve's Bank Term Financing Plan (BTFP) helps to ensure that banks don't have to sell held-to-maturity bonds at a discount price when funds are tight (and reduce their entire bond portfolio), it should be ashamed to use this tool. Much like the discount window, the Federal Reserve's BTFP is regarded as an emergency tool for banks facing pressure and the risk of bankruptcy, so it may be considered more cautious to maintain a liquidity buffer. Cabana said in an interview with the media that using BTFP is "a sign of weakness. If you want to be regarded as an independent entity bank without the support of official departments, then you can't do this". In addition, another reason is that the expectation of the end of the Fed's interest rate hike cycle is still heating up. Cabana said that money market funds have been extending the weighted average term of their investments in recent weeks, which may be because people think that the Fed has already raised interest rates. Cabana said that the weighted average maturity (WAM) of money market fund investment "rose sharply after the employment report and CPI were released in October". Money market funds "really believe that the Fed has raised interest rates". If banks really feel the urgent need to hoard liquidity, it may mean that the other part of the Fed's policy tightening-reducing the balance sheet-will need to end earlier than economists expected. Cabana said that we should pay attention to the trading volume of overnight RRP tools: when the trading volume drops to zero, it may indicate that the Fed needs to stop QT soon. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

Ackman said again: I don't believe in the "soft landing" of the United States, and I bet that the Federal Reserve will cut interest rates as soon as the first quarter of next year.

Earlier than market expectations, Ackman bet that the Fed would cut interest rates in the first quarter of next year. Bill Ackman, a hedge fund tycoon and founder of Pershing Square Capital Management, said that the Fed would cut interest rates as early as the first quarter of next year, otherwise it would face the risk of a "hard landing". Ackman's bet was earlier than the market expected. According to reports, swap market data show that traders have fully digested the expectation of interest rate cuts in June next year, among which the possibility of interest rate cuts in May next year is about 80%. According to the FedWatch tool observed by Zhishang Institute, as of November 28th, it is estimated that the possibility of interest rate cuts in May and June next year is 70% and 88% respectively. Ackman said that if the Fed continues to keep the interest rate within the range of about 5.5% when the inflation trend is below 3%, it will be a "very high real interest rate". Since March 2022, the Fed's interest rate hike cycle has reached the fastest speed in 40 years, raising the US interest rate to 5.25-5.5%; The core CPI data of the United States in October exceeded expectations and cooled to 4%, the lowest since September 2021. According to the report, Ackman does not believe that the US economy will move towards the so-called "soft landing", that is, the Fed will raise interest rates without triggering a recession. In other words, it is reported that Ackman has seen evidence of economic weakness, and he thinks: "If the Fed does not start to cut interest rates as soon as possible, there is a real risk of a hard landing." Ackman, who accurately shorted US stocks during the epidemic, once again made great strides this year. He successfully shorted US debt in the past three months and accurately closed his position at a low point. In August this year, after Fitch downgraded the credit rating of the United States, Ackman publicly stated that it would short the 30-year US Treasury bonds, because it predicted that the yield of the 30-year US Treasury bonds would climb to 5.5%, which might happen soon. From August to October, the yield of 30-year US bonds rose by more than 80 basis points, once exceeding 5%, but gradually fell back from November. At the end of October, Ackman also said on Twitter that its Pershing Plaza Asset Management has covered short bets on US Treasury bonds. The reason for closing the position is that he thinks that the US economic growth may slow down more than expected, and then the Fed should gradually start to cut interest rates. He said that from the current real interest rate level in the United States, the current interest rate is close enough to the restrictive level. Risk warning and exemption clause The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

Deutsche Bank: The Fed will cut rates by 175 basis points next year, the first 50 basis points in June

Analysts on Monday expected the Federal Reserve to cut interest rates more than the market currently expects as the U.S. economy moves into a mild recession in the first half of next year. In an outlook note, Deutsche Bank economists forecast a rate cut of 175 basis points in 2024. Deutsche Bank expects the Fed to cut rates by an initial 50 basis points at its June 2024 meeting, followed by a further 125 basis points over the rest of the year. Given the Fed's current rate of 5.25% to 5.5%, this would bring it down to 3.5% to 3.75% by the end of the year. In contrast, the data show that traders are currently expecting a rate of 4.48 percent by December 2024. Brett Ryan, senior U.S. economist at Deutsche Bank, said in an interview that the bank expects two quarters of negative U.S. economic growth in the first half of 2024, which would cause the unemployment rate to "rise substantially" from 3.9 percent now to 4.6 percent by the middle of next year. "We expect the economy to enter a soft patch in the first half of next year, which will lead to more aggressive rate cuts from the middle of the year," he said. At the same time, economic weakness is expected to "ease inflationary pressures." In a report released Monday, the bank said it expects a "mild recession" in the U.S. economy in the first half of 2024. Although the Fed has raised interest rates by 525 basis points since March 2022, the U.S. economy so far appears to have avoided recession predictions. In fact, Ryan said, "If things stabilize again in the future, the Fed's rate cuts will be much smaller."


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