"Global Rally Expected as 'Three Lows' Phenomenon Emerges... Key Variable Is the Fed"

The "Three Lows Phenomenon" Begins to Emerge
Driven by Expectations for a Fed Rate Cut and the Upcoming U.S.-Russia Summit

There is an emerging diagnosis that the so-called "three lows phenomenon"?characterized by low interest rates, low oil prices, and a weak dollar?is becoming partly visible, driven by expectations of a U.S. base rate cut and anticipation surrounding a U.S.-Russia summit. If expectations for a Federal Reserve (Fed) rate cut persist, it is expected that the global stock market rally will also continue for the time being under this three lows phenomenon.

On August 11, Park Sanghyun, a researcher at iM Securities, stated in a report titled "Weak but Visible Three Lows Phenomenon," "While the shockwaves from the U.S. July employment shock continue, the three lows phenomenon is becoming partly visible, albeit at a weak level."

Park explained, "The stabilization of government bond yields and the weakening of the dollar, both stemming from heightened expectations for the resumption of the Fed's rate cut cycle, as well as the stabilization of international oil prices due to the planned U.S.-Russia summit to discuss ending the Russia-Ukraine war, are collectively causing the so-called three lows phenomenon."

He added, "It is clear that the July employment shock is shaking the Fed. Summing up the remarks of key Fed officials after the July Federal Open Market Committee (FOMC) meeting, there is cautious support for the possibility of resuming the rate cut cycle." He continued, "If the July Consumer Price Index (CPI), to be announced this week, does not record a shock-level increase, President Donald Trump's pressure for a rate cut will intensify, and calls for a rate cut within the Fed will also grow stronger."

He further analyzed, "Given that financial markets are also assigning a high probability to a rate cut in September, expectations for a Fed rate cut will lead to further stabilization of U.S. Treasury yields and increase downward pressure on the dollar. Of course, the decline in the dollar is expected to be limited, but in the short term, a weak dollar sentiment could strengthen."

Park also predicted that the downward trend in oil prices would be positive for financial markets. He stated, "A meeting between the U.S. and Russian leaders to end the Russia-Ukraine war could lead to additional downward pressure on oil prices," and added, "With OPEC, including Saudi Arabia, increasing production, any easing of tensions between the U.S. and Russia will naturally act as a downward force on oil prices."

Accordingly, despite recent uncertainties over tariffs and concerns about the U.S. economy triggered by the employment shock, this three lows phenomenon is expected to partially alleviate fears of a U.S. recession and have a positive impact on the global stock market, which has lacked upward momentum.

Park emphasized, "The most important variable for the continuation of the three lows phenomenon is the Fed's rate cut. Expectations for a Fed rate cut will influence not only the dollar but also global liquidity flows, particularly the ongoing preference for risk assets among global capital." He added, "In this context, the importance of the U.S. July CPI data to be released this week has grown even further. If insurance-driven expectations for a rate cut are maintained, the global stock market rally, especially centered on the U.S. Nasdaq, is also likely to continue for the time being, albeit within the limited scope of the three lows phenomenon."

This content was produced with the assistance of AI translation services.