After a turbulent week, investors are most concerned about the eight major hot issues

After experiencing a turbulent week in the global financial markets, investors are focusing on the market outlook, including the "soft landing" view, the risks faced by the Fed's 50 basis point rate cut in September, the changes in the 10-year US Treasury yield and the yield curve, as well as the valuations of Asian and European stock markets.

On August 8th, analysts, strategists, and economists from HSBC, including Steven Major, released a report answering eight key questions, analyzing the prospects for different asset classes after the turbulent week and the impact of market volatility on investment prospects.

1. A significant increase in credit card delinquency rates and layoffs implies a reduced likelihood of a "soft landing"

Economist James Pomeroy pointed out that US labor market data is crucial. While some indicators are softening, they have not reached concerning levels, especially with no significant increase in layoffs yet. If this situation starts to change, it may be time to reconsider.

Taking a step back, many other macroeconomic data points are encouraging. There are deposits in US consumer banks, real wage growth, and a possible rate cut on the horizon.

Some economists also believe that the rising credit card delinquency rate is another slow-moving factor worth paying attention to. Although the default rate starts from a low point, this trend is on the rise.

James also mentioned:

"If we see the unemployment rate rising over time, it could weigh on economic growth."

2. The Fed's 50 basis point rate cut in September is not set in stone

Powell's speech at the Jackson Hole Economic Symposium later in August may help solidify market expectations.

Currently, upcoming data releases, including inflation data, are crucial. Based on the data available, James Pomeroy stated:

"We do not see a 50 basis point rate cut as a done deal. We expect a 25 basis point cut, but central bank decisions are becoming increasingly unpredictable. It depends on how the economists present interpret the data."

Previously, central banks in other parts of the world faced similar data sets and made different optimal action decisions.

3. Fed rate cuts will not weaken the US dollar

Global FX research director Paul Mackel pointed out that market pricing has evolved, with many factors reflected in the Fed's outlook. This means that the market is well prepared for the Fed's rate cut starting in September:

"We do not expect another round of chain reactions."

4. The 10-year US Treasury yield will decline

Fixed Income Research Director Steven Major maintains the forecast that the US 10-year Treasury yield will be 3.50% by the end of 2024 and 3.0% by the end of 2025.

He stated:

"Yields will go lower. Now may be a good time to rotate into emerging market local currency bonds, with India being a prime choice."

Five, Will the US Treasury Yield Curve Steepen Accelerate?

Steven Major stated that the initial value is crucial. Currently, the yield curve starts from an inverted state, and we are more inclined to focus on duration rather than the shape of the yield curve.

The key question is whether the steepening of the yield curve can exceed the market's expected forward prices.

He also mentioned:

"In our view, this may be a challenge. We have stopped related steepening trades in recent weeks."

Six, How Far Does Arbitrage Trading Need to Go to Close?

If we correctly believe that this pullback started around July 11th, then we are approaching the expected usual term end. However, surprises are possible as we have experienced in the past.

Paul Mackel believes that from a forex perspective, it is beneficial to look at the history of major pullbacks and assess how long they typically last:

"If we are correct in judging that this pullback started around July 11th, then we are nearing the expected end period of the pullback. However, we have encountered similar situations before, and surprises are possible."

Strategist Max Kettner mentioned that it is difficult to track the scale of yen arbitrage trading:

"Because most of it is over-the-counter trading. Before we see evidence, we have reason to be skeptical of some more extreme narratives and claims.

But looking at interest rate differentials and yield differentials, when the yen returns to fundamentals, we are unlikely to see the more drastic fluctuations we have seen."

Seven, In Asian Stock Markets, Domestic-Oriented Markets Can Be Seen as Safe Havens

Herald van der Linde, Asia-Pacific stock strategy director, believes that A-shares, Indian stock markets, Indonesian stock markets, and Philippine stock markets are in a better position:

"We are less concerned about export-oriented markets themselves and believe that Korea is in a better position than others. Due to market positioning, we are cautious about Japan."

Eight, Where is the Value in European Stock Markets?

Edward Stanford, European stock strategy director, stated:

"We have long said that mixing cyclical and defensive stocks as a hold is the right approach."

Moreover, industrial and healthcare are currently preferred industries. Both sectors benefit from high growth potential, which may provide support in a environment of declining interest rates; substantial overseas earnings and strong seller earnings growth prospects also help.

In terms of markets, he is optimistic about the UK, pointing out:

"The valuation of the UK is attractive, the pressure from pension fund sales has finally ended, we have a new government believed to bring more stability, which is more advantageous compared to other markets with unstable political situations, especially France."