Victory Lap 

In August 2024, the global equity market experienced significant volatility, but ultimately stabilized. Investors were caught off guard by the US job data and the reversal of the carry trade narrative. The job data came in weaker than expected, raising concerns about a potential recession. This led to doubts that the Federal Reserve might have been too late in cutting the benchmark rate, potentially over-tightening the economy. However, fears of a recession eased when strong US retail sales data was released, restoring investor confidence in the Fed’s handling of the economy. Investors now believe that the Fed has successfully guided the US economy toward a soft landing through gradual rate cuts. Eventually, the Fed chairman made a significant statement, indicating that the time has come for US interest rate cuts, citing diminished inflation risks and increased downside risks to employment.

Meanwhile, Japan added another layer of complexity to the global financial landscape by continuing its shift away from negative-rate policies, a process that began in March and has recently accelerated. The Bank of Japan raised its benchmark rate to combat persistent inflation, prompting many investors, who had borrowed from Japanese lenders to invest in foreign currency assets for decades, to unwind their positions.

Despite these developments, equity markets rallied as investors placed their trust in a September rate cut by the Fed. The dollar index has declined, fueled by optimism that the US economy is on track for a soft landing, or possibly even a “Goldilocks” scenario.