Expectations on Fed Cuts
Following a five percentage points hike to 5.5% in July 2023, the Fed has maintained its benchmark rate steady until June 2024. Fast forward to Tuesday (2 July), Fed Chair Jerome Powell said that the U.S. is back on a "disinflationary path", reinforcing expectations about forthcoming rate cuts. With investment sentiment on the upturn, where will the money flow?
Global Equity Trends
Global equity markets exhibited notable caution leading up to mid-June, influenced by anxieties surrounding US inflation and Fed policy decisions. US equity funds experienced significant outflows except in technology sectors. Technology sectors, particularly AI-related firms, garnered strong investor interest despite broader market caution, indicating sector-specific confidence in innovation.
Asian Market Inflows
Foreign investors reversed recent selling trends and poured $7.16 billion into Asian equities in June, driven by expectations of potential US interest rate cuts and stable US inflation. South Korea and Taiwan benefited significantly from this inflow, supported by global AI investments, boosting regional tech and semiconductor exports. Meanwhile India saw a notable turnaround with $3.19 billion in foreign investments, driven by the electoral stability and economic growth initiatives.
Speculating East vs West
While US equity funds experienced substantial outflows, European and Asian markets saw contrasting inflows, highlighting divergent investor sentiments. Regional dynamics in Asia saw a resurgence in investor confidence, particularly in technology and growth-oriented sectors. While investor optimism grows amidst expectations of US rate cuts, Fed Chair Jerome Powell tempered expectations with a cautionary note: "We want to be more confident that inflation is moving sustainably down toward 2% ... before we start ... loosening policy." This underscores that any rate cuts may not be immediate, reminding markets to remain vigilant amid evolving economic conditions.