The Fed's interest rate cut cycle begins, bringing new opportunities for global assets

The Fed has officially begun a new round of rate cuts, lowering the target range for the federal funds rate by 50 basis points to between 4.75% and 5.00%. This marks the start of a new easing phase for global liquidity, bringing new opportunities for investors.

As a result, global stock markets generally rose. The S&P 500 and Dow Jones Industrial Average hit new highs, with the Asia-Pacific stock markets performing particularly well. The cryptocurrency market also benefited from the expectation of interest rate cuts, with Bitcoin's price briefly surpassing the $66,000 mark, and a new round of upward momentum seems to be brewing.

Before the rate cut, the economic data released by the United States was mixed. The non-farm payrolls increased by 142,000, which was below expectations; meanwhile, the CPI for August rose by 2.5% year-on-year, marking a decline for five consecutive months. In the current context of interest rate cuts, employment data that falls short of expectations may actually become a positive factor, increasing the market's anticipation of a rate cut.

The recent rate cut slightly exceeded Wall Street's expectations. Historically, the Fed typically only implements a 50 basis point cut during its first rate cut when the economy faces recession risks. However, Fed Chairman Powell stated in his speech that the U.S. economy is still operating within manageable limits and there are no significant concerns about a recession. This indicates that this rate cut is a "preventive rate cut," as the Fed aims to take proactive measures to guard against potential economic risks.

Historically, preemptive interest rate cuts have often driven a global asset bull market while leading to a depreciation of the dollar. Therefore, we have reason to believe that this round of rate cuts will further push up asset prices.

The U.S. stock market reacted strongly after the interest rate cut announcement. There was a significant decline in the previous two trading days, but after the rate cut, the stock market opened high and continued to rise, with the S&P 500 reaching a new historical high. The small-cap index Russell 2000 performed particularly well, as the increase in market risk appetite typically first drives up high-volatility assets.

However, hedge funds seem to have a different view on this. According to data from Goldman Sachs, hedge funds have recently bought U.S. tech stocks, media stocks, and telecom stocks at the fastest pace in four months, continuing to bet on AI-related themes. This reflects a divergence in market outlook, with some betting on a recession, some trading on interest rate cuts, and others remaining optimistic about technological innovation.

From a global market perspective, the interest rate cuts have indeed brought positive impacts. Besides the United States, several market indices in Germany, India, Indonesia, Singapore, and other countries have also reached historical highs, with the Asia-Pacific market performing particularly well. This indicates that global investors generally hold an optimistic view of the investment environment following the interest rate cuts.

The impact of interest rate cuts also extends to the cryptocurrency sector. Bitcoin ETF data shows that most institutions increased their holdings of Bitcoin after the rate cuts. From a low of around $53,000, Bitcoin rebounded to over $66,000, marking a significant turnaround in its price trend. As a risk asset, Bitcoin will inevitably benefit from the advantages brought about by the rate cuts.

The Ethereum ETF has also seen a rare consecutive inflow of funds since its listing. Considering that the ETH/BTC exchange rate has dropped below 0.04, Ethereum may currently possess higher investment value, and a moderate allocation could be considered in subsequent asset allocation.

It is worth noting that a recent research report released by BlackRock has attracted widespread attention. The report points out that Bitcoin, as a unique risk diversification tool, has its appeal in being detached from traditional risk and return drivers. Many investors are seeking to hedge against dollar risks and U.S. debt issues through Bitcoin.

As global geopolitical tensions rise, concerns about the U.S. debt and deficit situation, along with increasing global political instability, Bitcoin may be viewed as an increasingly important risk diversification tool. It has the potential to help investors hedge against financial, monetary, and geopolitical risk factors that their portfolios may face.

Overall, the global liquidity easing cycle has arrived as expected, and the Fed has shown its determination to respond to economic risks by significantly lowering interest rates. Against this backdrop, all types of global assets are showing an upward trend, whether they are risk assets or safe-haven assets. In the environment of dollar easing, the market-wide rally is not surprising. Therefore, a moderate allocation to cryptocurrencies may be a wise move, as it could both enjoy the benefits of liquidity easing and hedge against the risks posed by the U.S. debt problem.