CGS International Securities
Date of Report: August 20, 2025
Asia Pacific Strategy: Why the Fed’s Next Move Matters—Jackson Hole’s Ripple Effect on Global Markets

Introduction: Decoding the Fed’s Balancing Act

The latest Asia Pacific Strategy Flash Note from CGS International Securities delivers a timely analysis of the Federal Reserve’s dual mandate—controlling inflation and ensuring full employment. As investors anticipate the outcome of the September FOMC meeting, this report explores whether the Fed will meet market expectations for a 25 basis point rate cut, the underlying economic signals, and the wider implications for equity markets, especially in the US and Asia Pacific.

Fed Policy: From Proactive Cuts to Reactive Measures

Over the past year, the macroeconomic landscape has shifted significantly. In 2024, rising unemployment and falling inflation justified a proactive rate cut. Now, however, both inflation and employment appear more balanced, if somewhat precariously. The starting point for rates is 100 basis points lower than last year, and market-based inflation expectations remain elevated—a signal that broad financial conditions, such as tight credit spreads and strong equity prices, are loose.
Key observations:

• Unemployment has been steady over the last 12 months.
• Pipeline inflation pressures are turning, with leading indicators suggesting a potential change in headline consumer prices.
• Current market pricing already reflects an 85% chance of a 25bp rate cut.

Labor Market: Beneath the Surface of Stability

While headline unemployment remains low, leading labor market indicators (job openings, temporary hires, ISM employment) reveal fragility. The resilient labor market narrative is being undermined by rolling deterioration, similar to the conditions preceding the 2008 financial crisis. Lagging indicators, such as the unemployment rate, may mask deeper stress as evidenced by rising job cut announcements.

• Downward revisions in job data are not sufficient justification for a rate cut.
• The FOMC is likely to keep rates on hold unless further labor market deterioration occurs in August.

Market Sentiment: Speculation, AI, and Narrow Breadth

The US equity market is currently expensive, with poor risk compensation for investors. Market gains have been concentrated in “profitless tech” and speculative sectors, fueled by abundant liquidity and a strong AI narrative. Notably, market breadth is extremely narrow, echoing patterns seen during previous technology booms and busts.

• The S&P 500 is more expensive now than in 95% of historical observations.
• Profitless tech stocks have surged 65% year-to-date.
• Speculative sectors are outperforming on the back of super-abundant liquidity.

Rate Cuts: Not Always a Green Light for Equities

Contrary to conventional wisdom, rate cuts are rarely bold, pre-emptive moves. Instead, they tend to be reactive, signaling cracks beneath the surface. Historically, such cuts have not marked “all clear” moments for equities but rather the onset of earnings recessions. The parallels with the early 2000s technology crash are especially notable, with rate cuts followed by rising unemployment and deteriorating economic conditions.

Investment Ratings and Coverage: Sector, Stock, and Country Breakdown

CGS International Securities provides a rigorous framework for stock, sector, and country ratings. Below is a summary of their recommendation definitions and coverage distribution.

Sector Ratings

• Overweight: Positive absolute recommendation (market cap-weighted).
• Neutral: Neutral absolute recommendation (market cap-weighted).
• Underweight: Negative absolute recommendation (market cap-weighted).

Country Ratings

• Overweight: Above-market weight relative to benchmark.
• Neutral: Neutral weight relative to benchmark.
• Underweight: Below-market weight relative to benchmark.

Stock Ratings Distribution (Quarter Ended June 2025)

Number of companies under coverage: 561 (as of June 2025)

Corporate Governance and Regional Disclaimers

CGS International Securities emphasizes transparent corporate governance, particularly in the Thai market, with survey results provided by the Thai Institute of Directors Association. The governance scores range from Excellent (90-100) to Good (70-79), with “No Survey Result” noted where applicable.
Regional distribution and disclaimer practices are outlined for markets in Hong Kong, Indonesia, Malaysia, Singapore, South Korea, Thailand, Australia, Canada, China, France, Germany, Ireland, New Zealand, Spain, Sweden, Switzerland, UAE, UK, and the US. These ensure compliance with local regulations and transparency about conflicts of interest, market making, investment banking relationships, and analyst independence.

Conclusion: Navigating Uncertainty in the Asia Pacific and Beyond

The Asia Pacific Strategy Flash Note from CGS International Securities provides investors with a comprehensive picture of the current economic and market climate. With the Federal Reserve’s next move at the forefront, market participants are urged to closely monitor labor market signals, inflation expectations, and the concentration of risk in speculative sectors. The framework and distribution of ratings offer a transparent guide for evaluating opportunities and risks across regions and sectors.
As global markets remain sensitive to policy shifts and underlying economic stress, a disciplined, data-driven approach remains essential for investors seeking to navigate the current cycle and anticipate future developments.