The Fed has clearly signaled a rate cut in the second half of the year, and the global capital market may usher in structural opportunities

Written by: By Jason Mitchell

1. Expectations for interest rate cuts are rising: Why has the Fed changed its attitude?

The minutes of the Federal Reserve's June 2025 FOMC meeting first proposed that "economic and employment data will be closely monitored in the coming months to assess whether the policy interest rate needs to be lowered." Different from the tone of "fighting inflation first" in the past two years, this wording was interpreted as officially opening the door to interest rate cuts this year.

Federal Reserve Chairman Powell pointed out at a press conference: "At present, inflation has fallen significantly. Although the economic growth rate has slowed down, it is generally stable. While ensuring price stability, we will pay more attention to employment and financial stability risks." Investment banks such as Goldman Sachs and Morgan Stanley immediately moved the timing of the Fed's first interest rate cut this year from December to September, and the probability of a rate cut implied by market interest rate futures also quickly rose to 85%.

2. The US dollar index is under pressure, and gold hits a new high

Affected by the interest rate cut signal, the US dollar index (DXY) fell continuously from late June to early July, from 104 to 101.8, hitting a new low in nearly a year. The US Treasury yield also fell, with the 10-year US Treasury yield falling below 3.9% at one point. Gold, a safe-haven asset, benefited significantly, with the international gold price breaking through $2,650 per ounce, setting a new record.

Analysts at the World Gold Council said: "The liquidity inflection point and rising geopolitical risks have prompted global central banks and institutions to continue to increase their gold holdings. Global gold demand is expected to grow by 15% year-on-year this year." At the same time, precious metals such as silver and platinum rose simultaneously, and there was a significant inflow of funds into precious metal ETFs.

3. US stocks and emerging markets rose across the board, with the technology sector performing outstandingly

In the US stock market, the S&P 500 and Nasdaq indexes have risen by 7% and 10% respectively since the end of June. Leading technology companies such as artificial intelligence, semiconductors, and cloud computing have benefited from capital inflows and improved earnings expectations. The share prices of companies such as Nvidia, Microsoft, and TSMC have hit new highs. The Dow Jones Index also broke through the 39,000 mark due to the rebound of the financial and industrial sectors.

Asian emerging markets benefited simultaneously, with South Korea's KOSPI, India's Nifty 50 and Vietnam's VN index all hitting record highs. Funding data showed that foreign capital has been flowing into Asia-Pacific stock markets for five consecutive weeks since June. Institutions believe that the Fed's interest rate cut will drive a rebound in global risk appetite, which will help repair the financing environment and asset valuations in emerging markets.

4. Bonds and real estate are experiencing a "breathing period", and diversified asset allocation has become the main line

The expectation of rate cuts has caused the global bond market to "celebrate in advance". The US investment-grade bond index rebounded 6% in the first half of the year, and high-yield bonds and Asian dollar bonds also attracted a large amount of capital allocation. Many large pension funds and sovereign funds have increased their bond weights to lock in capital gains brought about by falling interest rates.

At the same time, the global real estate market is expected to usher in a "breathing period". Mortgage interest rates in the United States, the United Kingdom, Australia and other places have begun to loosen after three consecutive years of highs, and the transaction volume of new and second-hand houses has rebounded. Many analysts pointed out that although the interest rate cut cycle is beneficial to the recovery of the real estate market, inventory clearance and demand recovery still need to be observed.

In terms of major asset allocation, the agency recommends maintaining the "stock + bond + gold" ternary combination in the next six months. Technology growth, energy, precious metals, and some high-dividend blue-chip stocks are considered to be the main beneficiaries.

5. Interest rate turning point risk and global uncertainty

Although the interest rate cut is expected to bring about a "rising tide lifts all boats", experts warn that risks cannot be ignored. First, historical experience shows that the first interest rate cut is often accompanied by rising market volatility. The Fed's decision on the balance between inflation and employment is still uncertain. If economic data fluctuates, the interest rate path may be adjusted again.

In addition, the global geopolitical situation in 2025 (such as the US and European elections, the Middle East conflict, and the Russia-Ukraine issue) may affect risk aversion and capital flows. After the marginal easing of US dollar liquidity, some emerging markets with weak local currency foundations are prone to exchange rate fluctuations and capital outflows.

VI. Outlook: Structural opportunities and long-term layout

Most institutions believe that this round of interest rate cuts will be a "structural bull market with technological innovation, digital economy and green finance as the main lines." Leading US stocks, A-share new energy, Southeast Asian Internet, gold ETFs and other directions are worthy of medium- and long-term attention.

Lin Nan concluded: "It is highly likely that the Federal Reserve will cut interest rates this year, which will reshape the global capital market landscape. Investors should downplay short-term fluctuations, focus on high-quality assets with earnings growth and improved fundamentals, and seize the next round of opportunities in globalization and diversified allocation."