Performance of major global assets after US rate cut

Author: Jessy, Golden Finance

"When the dollar dies, everything comes to life."

On September 18, local time, the Federal Reserve announced a 50 basis point interest rate cut, the first rate cut in more than four years. The rate cut exceeded expectations, the United States started a rate cut cycle, flooding the market, and major assets in the world have all seen a general rise.

After the United States cut interest rates, some major countries also announced rate cuts. For example, China announced a reduction in reserve requirements and interest rates, a reduction in mortgage rates, and a package of policies to stimulate economic development in order to boost the domestic economy.

After the Federal Reserve cuts interest rates, most countries will generally follow suit. The US dollar is the world's dominant currency, and the more open the financial system is, the more likely it will keep pace with the Federal Reserve in terms of interest rates. Especially those countries or regions that have no independent monetary policy at all, that is, those that are completely linked to the US dollar, will have to follow suit as soon as the US dollar cuts interest rates. For example, the Hong Kong dollar is the shadow currency of the US dollar. The Hong Kong government has to follow suit to reduce the interest rate by the same amount as the US, otherwise the arbitrage funds brought by the interest rate differential will be able to destroy the Hong Kong government's foreign exchange reserves in a few days.

After the US interest rate cut, many central banks announced the latest interest rate policies. China, Hong Kong, Indonesia, South Africa, Saudi Arabia and other countries and regions announced interest rate cuts. Japan, which is in the interest rate hike cycle, chose to "stand still", while Brazil chose to raise interest rates. Some countries and regions also rushed to cut interest rates as early as the first half of this year, such as the European Union and Canada.

In theory, the US cuts interest rates, the US dollar depreciates, and other countries' currencies appreciate relatively, with excess liquidity. More money will flow to high-risk assets, while the attractiveness of domestic assets in the United States will decline relatively, and overseas assets will be relatively more attractive, and global stock markets will rise sharply.

However, there is a certain gap between the actual situation and the theory, and the performance of financial assets will also be affected by political and geopolitical conflicts and other factors. In this article, Golden Finance sorted out the performance of major global assets after the US interest rate cut.

Crypto assets

Currently, crypto assets, especially Bitcoin, have become highly US-based. After the US announced the interest rate cut, the overall trend of Bitcoin was upward, and Bitcoin rose 5.03% in the late trading to $63,165. As of September 30, the highest price of Bitcoin in a single day reached nearly $66,000. As of press time, the price of Bitcoin has stabilized at around $63,000.

The total market value of cryptocurrencies has also risen, and is currently stable at $2.4 trillion, while on September 18, the value was nearly $2.2 trillion.

Changes in the total market value of cryptocurrencies

A shares

After the Federal Reserve announced a rate cut, China quickly followed suit. On September 27, the People's Bank of China simultaneously implemented a reserve requirement ratio cut and interest rate cut.

In the stock market, within less than ten trading days, some countries and regions, such as the European Union, the United Kingdom and other countries and regions, rushed to cut interest rates as early as the first half of this year. It broke through from 2700 points to 3300 points.

On September 30, the last trading day before the National Day holiday, the turnover of A-shares continued to increase, and the total turnover of the Shanghai and Shenzhen stock markets exceeded 2.5 trillion yuan, setting a new high.

Hong Kong stocks

After the Federal Reserve announced a rate cut, the Hong Kong Monetary Authority immediately announced a 50 basis point cut in the benchmark interest rate to 5.25%, effective immediately.

Several banks in Hong Kong also announced that they will cut the Hong Kong dollar prime annual interest rate (P) by 0.25% in the near future. Among them, Bank of China (Hong Kong), HSBC and Hang Seng Bank dropped to 5.625%. On the day when the rate cut was announced, the Hang Seng Index closed at 18013.16 points, a new high in more than two months.

In the past month, the Hang Seng Index has risen by nearly 20% and the Hong Kong Stock Exchange (00388) has soared by more than 37%.

European stock markets

The European Central Bank began to cut interest rates in June, which was earlier than the United States announced this time.

After the Fed cut interest rates, the Bank of England said it would keep interest rates unchanged. European stock markets closed higher after the Fed cut interest rates, with the European technology sector leading the way with a gain of more than 3.4%. France's CAC40 stock index closed up 2.29%. The performance of the German stock market was particularly eye-catching. The Dax index opened sharply higher after the announcement of the interest rate cut, pushing the index to break through the 19,000 mark for the first time in history. The UK's FTSE 100 rose more than 1.25%, and the Dutch AEX index closed up 1.77%. As of September 30, except for the FTSE 100, which hit a high on September 19 and is now falling back, the other stocks are still in an upward trend.

US stocks

In the foreign exchange market, the US dollar index also showed a volatile reversal trend on the same day. After approaching the 100 mark, it gradually recovered most of its lost ground and finally fell slightly by 0.08% on the day.

On the day after the Fed cut interest rates. US stocks rose across the board, and the S&P and Dow closed at new highs. When the intraday high was refreshed, the Nasdaq rose by more than 3.1%, the Dow rose by nearly 658 points, and the S&P rose by nearly 2.1%. The S&P set a record closing high for the first time since July, and the small-cap stock index rose for seven consecutive days. Chinese stocks outperformed the US stock market.

Gold

After the Fed cut interest rates, gold continued to hit new highs. On September 30, the international COMEX gold price was 2672. Since the beginning of this year, the international COMEX gold has risen by nearly 30%.

Brazil IBOVESPA Stock Index

After the Fed announced the interest rate cut, the Monetary Policy Committee of the Central Bank of Brazil voted unanimously to raise the benchmark interest rate by 25 basis points to 10.75%, the first rate hike in two years. The Brazilian Central Bank believes that this move will help stabilize the currency exchange rate and fight against the depreciation pressure caused by inflation.

The Brazilian IBOVESPA stock index has been in a downward trend after Brazil announced a rate hike, and has rebounded to a certain extent since the 23rd.

Nikkei Average Index

After the Fed cut interest rates, the Bank of Japan chose to stay put and maintain the policy interest rate at 0.25%.

The Bank of Japan believes that due to the appreciation of the yen, the risk of price increases exceeding expectations is decreasing, and there is no need to further raise interest rates at present.

The Fed is currently in a cycle of interest rate cuts, while Japan is in a cycle of interest rate hikes. After the United States announced a rate cut, it rebounded to the 37,000 mark for the first time in two weeks, and has been in an overall upward trend these days.

Summary:

At present, it has been less than half a month since the Federal Reserve announced a rate cut. Most of the world's major assets are in a theoretically rising market. Large-scale water release will promote a bull market, but it will also give rise to bubbles.

Investment requires rationality. It is difficult for people to make money beyond their own cognition. In the face of the general rise in major global assets, choose a market that you are familiar with to bet on and strictly implement your own trading strategy, perhaps to make a safe investment.

The US election in November is also an uncertain factor affecting the market outlook.