As U.S. retail sales soften, the labor market cools, and inflation continues to retreat, Wall Street's expectations for the Federal Reserve's monetary policy are undergoing a significant shift. The latest institutional analysis indicates that, weighed down by weak economic data, the probability of the Fed continuing to tighten monetary policy at next month's meeting is now negligible. Previously, the market priced in an overly hawkish stance, but traders have now pushed the expected timeframe for the next rate hike to early next year. In terms of asset allocation, institutions remain optimistic that U.S. stocks will hit new record highs by year-end, and they expect the U.S. Treasury yield curve to steepen further. In the foreign exchange market, against the backdrop of generally mild global inflation, high-yielding currencies are expected to remain strong, with currency pairs such as USD/CAD and EUR/CHF presenting attractive trading opportunities.

Across the Atlantic, the European Central Bank's policy path is unfolding at a different pace. Markets expect the ECB to deliver its final 25-basis-point rate hike in September, which will likely mark the end of this tightening cycle, with a pivot to rate cuts expected around the middle of next year. Echoing these monetary policy expectations, European capital markets are drawing increasing attention. Although the 10% year-to-date gain of the Euro Stoxx 600 is slightly lower than the 13.5% return of the S&P 500, from a longer-term perspective, European large-cap stocks have actually outperformed U.S. equities.

There are some ingrained biases in the market regarding European assets, but the latest in-depth analysis has clarified these misconceptions. Concerns about the impact of low-cost Chinese goods on European industries have been exaggerated; the core sectors with the highest weights in the European market—such as financials, healthcare, technology, and energy—have been largely unaffected, while the much-watched automotive sector accounts for only 1% of the total European market capitalization. Meanwhile, the European financial sector, particularly bank stocks, has shown remarkable resilience, with overall performance significantly outpacing the U.S. Magnificent Seven since 2022. Furthermore, Europe's relative lag in AI infrastructure and frontier model development has paradoxically become a unique hedging tool in the current market environment, providing a safe haven for global capital worried about an AI bubble and related geopolitical risks. Supported by reasonable valuations and a favorable sector composition, the Euro Stoxx 600 is demonstrating the market conditions to sustain its strong momentum.