The Fed's rate cut opens a new cycle, global asset markets welcome Favourable Information

The Federal Reserve recently announced a reduction of the federal funds rate target range by 50 basis points to 4.75%-5.00%, marking the official start of a new rate-cutting cycle after four years. This decision will push global liquidity into a new easing phase, having a profound impact on various asset markets.

Stimulated by the news of interest rate cuts, global stock markets generally rose. The S&P 500 and Dow Jones indexes in the United States continued to set historical highs, with the Asia-Pacific region's stock markets performing particularly well. The cryptocurrency market also benefited from the interest rate cut dividends, with Bitcoin's price once breaking through the $66,000 mark, and a new round of rising market seems to be brewing.

The rate cut this time slightly exceeded Wall Street's expectations. Historically, the Fed typically only cuts rates by 50 basis points for the first time when the economy is in recession. However, Fed Chairman Powell stated in his speech that the U.S. economy is still operating within a controllable range, and there are no major concerns about a recession. This indicates that this rate cut is a "preemptive rate cut" aimed at preventing potential risks.

Based on historical experience, unless it is an emergency rate cut to respond to a recession, preemptive rate cuts often drive a global asset bull market while leading to the depreciation of the dollar. Therefore, the market has reason to expect asset prices to replicate historical trends.

After the interest rate cut news was announced, the market reacted strongly. The US stock market jumped high and continued to rise after two days of significant declines. The small-cap index Russell 2000 performed exceptionally well, reflecting an increase in market risk appetite. However, hedge funds seem to prefer technology stocks, continuing to bet on AI-related themes.

From a global perspective, interest rate cuts have brought positive feedback. Besides the United States, stock indices in many countries, including Germany, India, Indonesia, and Singapore, have reached all-time highs, showing that investors are full of confidence in the investment environment after the interest rate cuts.

The cryptocurrency market also benefits from interest rate cuts. Bitcoin ETF data shows that most institutional holdings have increased, reflecting an improvement in U.S. investor sentiment. The price of Bitcoin rebounded from a low of around $53,000 at the beginning of the month to over $66,000, completing a significant comeback. Ethereum ETF has also seen a rare consecutive inflow of funds since its listing.

It is worth noting that BlackRock's latest research report indicates that Bitcoin, as a unique risk diversification tool, is attracting increasing attention from investors. The report argues that the risks and potential return drivers associated with Bitcoin are fundamentally different from those of traditional high-risk assets, making it a potential choice for hedging against dollar risk and addressing geopolitical uncertainties.

Overall, with the arrival of the liquidity easing cycle, global asset markets are generally showing an upward trend. In the context of a loose dollar environment, cryptocurrencies may become an ideal choice for investors to balance liquidity dividends and risk hedging.