Last night, Powell maintained his consistent cautious stance, refuting those who called for the Fed to unexpectedly cut rates for the first time on Thursday, while reiterating that the Fed is closely monitoring the cooling labor market.

He managed to hint at a high possibility of a rate cut in September without indicating that the labor market and economy have slowed to a degree that would worry investors.

Fed Chairman Powell successfully took a middle-of-the-road approach on Wednesday. Investors responded by pushing up U.S. stocks and Treasury bonds.

As Powell spoke, the U.S. stock market rose across the board. Small-cap stocks showed a particularly strong reaction to Powell's comments about the potential rate cut in September.

The Russell 2000 index soared during Powell's press conference after lagging earlier in the day. Although it quickly gave up most of its gains, according to FactSet data, the Russell 2000 index still closed up 0.5% on Wednesday and rose over 10% in July.

The Nasdaq and S&P 500 indices recorded the strongest daily gains since February. Especially for the Nasdaq, it marked a turbulent month ending on a positive note,

although this did not prevent the index from falling by 0.8% in July. Meanwhile, the S&P 500 index posted gains for the third consecutive month.

Bank of Japan's Unexpected Rate Hike

Yesterday, the decision of the Bank of Japan became the focus of the market. The Bank of Japan unexpectedly raised rates by 15 basis points, adjusting the policy rate to 0.15%-0.25%, exceeding market expectations.

Although the rate hike was seen as bearish, the central bank subsequently announced plans to halve bond purchases to 30 trillion yen in the first quarter of 2026, which was interpreted by the market as a positive adjustment.

After the rate hike, hot money in yen collectively fled, impacting the U.S. stock market, while Asian stock markets benefited from it.

Outlook

The rise in Hong Kong stocks can be attributed to the capital flow after the rate hike by the Bank of Japan. With the return of yen funds, Asian stock markets have become a low-lying area for capital,

attracting an influx of hot money. Although this rise may be short-lived, its impact on the market should not be ignored.

The U.S. stock market is still in a down cycle. Market analysts advise investors not to rush to the bottom, expecting the market to stabilize possibly by the end of August, when the mid-year reports of major companies such

as Nvidia are disclosed, and market sentiment may change.

Fidelity International's Macro and Strategic Asset Team stated that the Fed, as expected by the market, kept interest rates unchanged for the 8th consecutive time. However, due to clear progress in inflation and the labor market,

it has brought a signal for the central bank to cut rates. The trend of slowing inflation has expanded from goods to core services and housing service prices excluding housing; employment levels have returned to pre-pandemic levels,

but the maximum target is facing downward risks, and vigilance is maintained against potential sharp declines.