Over the past few days, the global capital market has experienced a staggering upheaval!

The Japanese stock market is considered the "instigator" of this global capital market convulsion, once again drawing the world's attention.

As of the close on August 7th, over the past two days, the Nikkei 225 index has essentially recaptured its "lost territory," but the S&P 500 and Nasdaq have not yet recovered half of their losses since last Thursday.

In addition to the stock market, gold and the bond market have also experienced significant fluctuations, leaving people at a loss!

The theory of recession is gradually emerging.

Looking back at the market's analysis of the recent plummet in the Japanese stock market, one mainstream view attributes the main reason for the Japanese stock market crash to Japan's interest rate hike.

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On the surface, this statement is not wrong and is one of the most important factors in economic theory. However, the latest shift in Japan's monetary policy occurred on July 31st, when the Bank of Japan announced that it would raise the policy target interest rate from around 0-0.1% to 0.25%.

The day after the Bank of Japan announced the interest rate hike, the Japanese stock market had already begun to decline, with a cumulative drop of about 7% over two consecutive days. But by August 5th, the Nikkei 225 plummeted by 12.4% in a single day—shouldn't the market reaction be so belated?

A possible explanation is that it took a few days after Japan's interest rate hike for funds to flee the Japanese stock market in large quantities. The yen, long serving as a zero-interest currency, has become an important carry trade currency globally, and everyone is very willing to borrow yen for carry trade activities. If we look at the long term, despite the Japanese economy not being very impressive over the past few decades, since 2008, the Nikkei 225 has been in an upward trend.After all, Japan's sudden interest rate hike is more about preserving foreign currencies, but whether the Japanese economy has truly crawled out of the recession remains to be seen, and the sudden rate hike could further harm the Japanese economy.

The well-known independent macroeconomic research institution BCA Research's Global Strategy Research, Peter Berezin, commented in March this year that in modern financial history, no single indicator can predict when the next global economic recession will begin better than the Bank of Japan starting to raise interest rates!

Looking at the US market, since July 16th, the S&P 500 index began to decline from its peak, and on July 11th, the NASDAQ only started to drop. In addition to being influenced by the Japanese stock market, the poor performance of several leading stocks, as well as the July non-farm employment and ISM manufacturing PMI data, which were significantly lower than expected, once again intensified market concerns about the US economy heading towards recession and a "hard landing."

If we follow this logic, gold, with its safe-haven attributes, should take the lead, and the underperforming data once again sparked discussions in the market about the Federal Reserve's interest rate cuts. However, gold has also seen a correction in recent days.

On the surface, on one hand, there may be capital taking profits from the expected rate cuts; on the other hand, in reality, the Federal Reserve's monetary policy does indeed diverge from the monetary policies of some European countries.

But behind the scenes, there may be more layered and complex reasons at play, with capital also watching for changes in some hidden trends.

When commenting on whether Japan and the United States are in a recession, CICC believes that for Japan, the central bank's rate hike again, according to market experience, is a harbinger of recession, but this is a post-hoc rule and lacks a necessary connection.

The current baseline scenario is a mild economic slowdown, which is also the result before financial conditions tighten and interest rates are cut. The rate hike itself will suppress growth and demand, but the restrictive nature of monetary policy and financial conditions on demand is marginal, so the extent of the fundamental weakening should not be overly linearly extrapolated.

As for the United States, the main factors leading to recession are: monetary tightening, fiscal spending cuts, high leverage, stock market crashes, and external shocks; currently, most pressures are controllable.Indeed, the actual situation is that we typically gain a full understanding of how long an economic recession will last and how severe it will be only after the fact.

Who will become the "fortress"?

Apart from the stock market, as the most important category of major asset classes, the bond market has also experienced a roller coaster ride.

On August 5th, the global market experienced a "Black Monday," and this turmoil quickly spread to the domestic bond market. At the close of the day, the 30-year government bond yield fell by 2.6 basis points to 2.315%, and the 10-year government bond yield plummeted to 2.11%.

In terms of liquidity, it is due to the consideration of a brief profit-taking by funds.

Huaan Securities analysts believe that banks are the main force in trading. Looking at the government bond transactions on that day, large banks were the main sellers, focusing mainly on new 7-year and 10-year bonds, with a scale of about 20 billion yuan, showing a pattern of "large banks selling, small banks buying" within the banking sector. Additionally, rural commercial banks and securities firms were the main recipients of the large banks' bond sales.

Looking at the past week, the yield on the 10-year government bond has already formed a ladder-like downward channel.

Looking forward from the current point in time, what are the market's expectations for the bond market?

Xiao Jinchuan, the chief macro analyst at Huaxiang Securities, pointed out in his comments that at the current level, the reference value of historical experience is gradually becoming blurred, and the difficulty of grasping the rhythm of the bond market's advance and retreat has risen sharply.However, when discussing influencing factors, the focus was on the main domestic policy level.

Xiao Junchuan pointed out that with the convening of several important meetings at the end of July and the release of overseas economic data, the potential pricing factors influencing the bond market in August gradually became clear, mainly focusing on three aspects: the continuation of the "loose money" policy, the fiscal effort in the second half of the year, and the expectation and reality of the appreciation of the RMB.

Lu Pin, the head of the fixed income team of Debon Securities, believes that the leading force in the bond market in August shifted from internal balance to external balance. Zhang Weiyou, the chief fixed income analyst of China Merchants Securities, said that the behavior of foreign capital allocating domestic bonds is affected by various factors, including the interest rate difference between China and the United States, the expectation of the RMB exchange rate, etc.

There are no lack of optimistic views in the market, believing that the bond market can pay attention to the supply-side pressure in the later stage.

China Asset Management pointed out that with China's transition from a stage of high-speed growth to a stage of high-quality development, the main drivers and models of economic development will undergo significant changes, and it is a high probability event that the bond market yield will gradually decline. Looking further, from the perspective of China's long-term economic structural adjustment and the allocation needs of market investors, the bond market is still in a more favorable environment.

As for gold, everyone's long-term expectations are currently more consistent, and clearer than bonds. Alex Ebkarian, Chief Operating Officer of Allegiance Gold, said: "At the current level, we do indeed expect some pullbacks and profit-taking, but from a fundamental perspective, the upside potential far outweighs the downside risks."

In conclusion, after two days of significant fluctuations in the Japanese stock market, on August 7, according to CCTV news, Naoyuki Uchida, Deputy Governor of the Bank of Japan, said at a financial and economic symposium held in Hakodate City, Hokkaido, Japan, that under the unstable financial and capital markets, there will be no interest rate hikes.

In recent times, there have been violent fluctuations in the financial and capital markets both domestically and internationally in Japan. The impact of violent fluctuations on the economy and prices will be observed with a high degree of tension, and appropriate measures will be taken to cope. It is necessary to continue the current level of financial easing policy.

Affected by this, the Nikkei 225 has shown signs of rebound, and the overall situation is not yet determined. It is estimated that the market will continue to fluctuate in the short term.