Fed Rate Cut Triggers Global Easing Wave: Hong Kong, Japan, Bitcoin Celebrate

Fed Rate Cut Triggers Global Easing Wave: Hong Kong, Japan, Bitcoin CelebrateFollowing the Federal Reserve's announcement of a rate cut, global financial markets erupted in celebration. The Hong Kong Monetary Authority quickly followed suit, announcing a reduction in its benchmark interest rate to 5

Fed Rate Cut Triggers Global Easing Wave: Hong Kong, Japan, Bitcoin Celebrate

Following the Federal Reserve's announcement of a rate cut, global financial markets erupted in celebration. The Hong Kong Monetary Authority quickly followed suit, announcing a reduction in its benchmark interest rate to 5.25% with immediate effect. Concurrently, central banks in Kuwait, Bahrain, the UAE, and Qatar also joined the rate cut bandwagon, signifying a growing trend towards global monetary policy easing.

The Hong Kong Monetary Authority announced today (September 19) that its benchmark interest rate would be set at 5.25% as per a pre-defined formula, taking effect immediately. This benchmark rate is applied for calculating the discount rate for repurchase transactions through the discount window. Currently, the benchmark rate is set at the lower limit of the current US federal funds interest rate target range plus 50 basis points, or the average of the 5-day moving average of overnight and 1-month Hong Kong Interbank Offered Rate (HIBOR), whichever is higher. Due to the United States lowering the federal funds rate target range by 50 basis points on September 18 (US time), the lower limit of the current target range plus 50 basis points is 5.25%, whereas the average of the 5-day moving average of the overnight and 1-month HIBOR is 3.21%. Consequently, based on the pre-set formula, the benchmark rate is set at 5.25%.

Beyond the Hong Kong Monetary Authority, more central banking institutions declared rate cuts on September 19. The Central Bank of Kuwait lowered its rate by 25 basis points to 4%; the Central Bank of Bahrain reduced its overnight deposit rate by 50 basis points to 5.50%; the Central Bank of the UAE lowered its overnight deposit rate by 50 basis points to 4.90%; and the Central Bank of Qatar reduced its deposit rate by 55 basis points to 5.2%, repurchase rate by 55 basis points to 5.45%, and lending rate by 55 basis points to 5.70%.

The effects of this rate cut wave are already becoming evident. On September 19, the Japanese stock market opened higher, with the Nikkei 225 index soaring above 2% to reach 37213.27, a gain of 833 points. Bitcoin also surged more than 3% intraday, surpassing $62,000. Ethereum breached $2,400/coin during the session, its highest point since September 15.

Analysts point out that for the Chinese market, the main impact stems from how well this easing effect outside the country permeates inwards, translating into corresponding domestic policy adjustments. As Hong Kong's stock market is sensitive to external liquidity and follows the interest rate cut under the linked exchange rate system, its responsiveness is greater than that of the A-share market. Similarly, at the industry level, interest-sensitive growth stocks (biotechnology, technology hardware, etc.), sectors with a higher proportion of overseas dollar financing, Hong Kong-listed local dividend-paying stocks, even real estate, and the export chain, might also experience marginal benefits.

A research report by CITIC Securities states that the Fed's rate cut of 50bps at its September 2024 policy meeting exceeded some market expectations. The statement from the meeting differed considerably from the previous one, demonstrating confidence in the cooling of inflation and support for the job market. The dot plot from this meeting indicated a 4.4% target rate for this year, lower than the 5.1% from the June 2024 meeting, and also lowered the target interest rate for next year. Powell stated that there was no pre-determined path for rate cuts, and decisions would be made on a meeting-by-meeting basis, continuing to emphasize policy flexibility. He also expressed a positive outlook for the economy and the job market, still painting a picture of a "soft landing."

CITIC Securities believes that the Fed's 50bps rate cut is a pre-emptive move aimed at preserving the current economic growth and job market conditions while retaining policy flexibility for later. They anticipate two additional 25bps cuts this year. Following the realization of rate cut expectations in overnight trading, the market is likely to revert to a "soft landing" trading scenario in the short term. The downward space for US bond yields might be limited, while US stocks could continue to exhibit high volatility. Sectors such as biotechnology and real estate tend to perform well during "soft landing" rate cut trading.

It is important to note that this rate cut wave doesn't necessarily signify a rosy economic picture. The fundamental reason for the Fed's rate cut is the slowdown in economic growth and persistent inflationary pressures. Therefore, there remains uncertainty surrounding future economic trends. Investors must closely observe monetary policy developments of central banks globally and changes in the global economic landscape to better seize market opportunities.