Good evening everyone, the most watched thing in the world in the past two days is undoubtedly the Federal Reserve's interest rate meeting. The market as a whole has certain expectations for the outcome of the meeting. No, counting today, the Shanghai Stock Index has been positiv

Good evening everyone, the most watched thing in the world these two days is undoubtedly the Federal Reserve’s interest rate meeting. The market as a whole has certain expectations for the outcome of the meeting. No, counting today, the Shanghai Stock Index has been positive for two consecutive years. (Data source: wind, as of 2024.09.19.)

Judging from the results, although this interest rate cut is in line with the overall market expectations, it is of greater significance. On the one hand, there have been a lot of twists and turns before the rate cut was implemented (the macro data leading up to the rate cut continue to disturb the probability of interest rate cuts); on the other hand, this rate cut will open the curtain of the global easing cycle to a certain extent, and has a relatively obvious milestone significance.

Interest rate cut implemented

According to Xinhua News Agency, the U.S. Federal Reserve announced on the 18th local time that it would lower the target range of the federal funds rate by 50 basis points to a level between 4.75% and 5.00%. This is the first interest rate cut by the Federal Reserve since March 2020, and it also marks a shift from a tightening cycle of monetary policy to an easing cycle.

Data source: Federal Reserve, 21st Century Economy, as of 2024.09.19. Past performance does not represent the future.

This shift in monetary policy is largely determined by the performance of the U.S. labor market. According to the 21st Century Business Herald, the key reason why the Federal Reserve chose a "big turn" in monetary policy to boost the labor market was not to let the soft landing go to waste. Federal Reserve Chairman Powell said that inflation levels have been closer to the target, the upward risks to inflation have weakened, while the downside risks to the labor market have increased. Powell also said that there are currently no signs of recession in the U.S. economy and he does not believe that a recession is imminent. The Fed is now increasingly confident that the strength in the job market can be maintained while adjusting policy rates.

Therefore, it can be seen from Powell’s words that the subsequent rate cut by the Federal Reserve has a direct relationship with the performance of the U.S. labor market. If subsequent labor market data does not improve significantly, the Federal Reserve may accelerate the pace of interest rate cuts.

After talking about the interest rate cut, we have to return to the impact of the interest rate cut. This interest rate cut mentions the word "milestone", so it is highly likely that it will have a wider impact on the pricing of global assets. Let's sort it out for everyone.

The impact of interest rate cuts on asset performance

The impact of this interest rate cut on major global assets, according to 21 Finance, Guangdong Securities said:

❶ For the stock market, interest rate cuts release liquidity and are good for U.S. stocks, but due to the uncertainty of the U.S. election and monetary policy path As well as the current high valuation level of US stocks, we must also be wary of the risk of a correction in US stocks.

❷ For bond assets, the certainty of U.S. debt is relatively high, However, there are currently no obvious signs of recession in the U.S. economy, the Fed’s interest rate cuts are slow, and the downward slope of U.S. bond yields is expected to slow down.

❸ For the foreign exchange market, the U.S. dollar is under pressure, but the continued resilience of the U.S. economy is supporting the U.S. dollar. Japan's interest rate hikes and global risk aversion may support the rise of the yen.

❹ For gold, there is a risk of a correction in the short term , and may still be in an upward cycle in the medium and long term. Gold's "rush" trend is obvious, and there is a risk of a correction if the good news is realized. In the medium to long term, supported by factors such as global "de-dollarization" and intensified geopolitical conflicts, gold prices may still be in a long-term upward cycle. (Source of opinion: 21st Century Business Herald, Guangdong Securities, "The Fed's 50 basis point interest rate cut "boots off". Who is the winner among gold, bonds and stocks?".)

The Fed's interest rate cut has a relatively direct impact on overseas asset pricing, but Because asset pricing has a certain degree of conductivity.Therefore, it also has a greater impact on domestic assets. According to CCTV reports, institutional sources said that the Federal Reserve has entered an interest rate cutting cycle, which will first affect the People's Bank of China to implement a relatively loose monetary policy, which may be achieved through various means such as lowering reverse repurchase rates, existing mortgage interest rates, and lowering the deposit reserve ratio. Stimulate economic growth. On the other hand, the RMB has recently experienced a round of appreciation, which has greatly reduced the pressure on the central bank to maintain exchange rate stability. This has also laid the foundation for the central bank to adopt more monetary policy tools. The RMB has entered an appreciation range, which will attract foreign investment to return RMB assets. This is good news for the currently weak A-share market and will help promote a slight rebound in the A-share market. (Opinion source: CCTV.com "Detailed explanation! What does the Fed's interest rate cut mean?".)

In summary, the Fed's interest rate cut will have a far-reaching impact on the future global capital market, and every asset will be affected by this interest rate cut. corresponding strategy. However, it should be noted that many assets have already had a relatively obvious "jump start" performance before this interest rate cut, so there may be a certain risk of retracement in the future. After all, in investment, the phenomenon of "buying expectations and selling facts" is relatively common. Therefore, U.S. dollar bonds, as a direction with relatively high certainty, may have certain allocation advantages.

In order to further understand the logical support for the direction of U.S. dollar bonds, I asked Wang Ziyun, the fund manager of the Southern Asia USD Income Bond Fund. He said that from a historical perspective, U.S. bond investments tend to perform well during interest rate cuts. There are expectations for some bond prices to rise during a rate cut cycle. From a structural point of view, the Fed's interest rate cut lowers the benchmark interest rate, which will give overseas fixed-income assets an opportunity to reprice. The Fed's interest rate hike is tantamount to tightening global liquidity. If it is in an interest rate cut cycle, it will be quite significant for U.S. debt assets. So a very big benefit.

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