[Interest Rate Cycle] How to deploy US interest rate cuts
US interest rate futures market meeting result: interest rate cut by 0.5 cm Economic Outlook and Investment Strategy Analysis
The results of the expected Fed meeting are finally out, and the Fed announced a 0.5 percent cut in interest rates after the rate decision, for the first time in more than four years, in line with recent interest rate futures market expectations. UPWARD RISKS TO THE ECONOMY HAVE WEAKENED, AND DOWNSIDE RISKS IN THE LABOUR MARKET HAVE BECOME THEIR LATEST FOCUS, ACCORDING TO THE LATEST SPEECH BY FED PRESIDENT BOWELL. However, the President also made an important message saying that he believes that the Fed will not return to the previously low neutral rate; at the same time, everyone should not think of a 0.5 percent rate cut as a new pace.
and earlier articles”Earnings Conference Expected by Volkswagen, Investment Deployment Strategy for Q4 “The consensus is that the outcome of this session is not just a matter of how much interest rate reduction, but rather the outline and economic outlook forecast published by the Fed. The Bureau's Economic Outlook for the United States:
GDP growth: 2% growth is expected this year, down from 2.1% in June.
Unemployment rate: 4.4% expected for the end of this year, higher than 4% in June.
Core inflation: 2.6% expected, easing from 2.8% expected in June.
In addition, the Fed will continue to implement its planned quantitative easing (QT), with a gradual reduction of US bonds and mortgage-backed securities (MBS) at $250 and $350 per month, respectively.
In fact, the Fed continues to suggest that the US economy remains in a stable phase, and despite the rising unemployment rate, it will remain within the limits of manageable and healthy levels. The pace of economic growth will slow but not fall into a recession, which is the “soft ground” scenario we have often referred to over the past year. This is why some traditional hedging assets such as the Japanese yen after the outcome of interest rates. $USD/JPY(USDJPY.FX)$、Gold $ Gold Mainline (GcMain.us) $and bond prices $iShares 20+ Year Treasury Bond ETF(TLT.US)$ There are signs of slight stress. Top 3 U.S. Stock Indices $Nasdaq Composite Index(.IXIC.US)$ $S&P 500 Index(.SPX.US)$ $Dow Jones Industrial Average(.DJI.US)$ There is no clear direction. Conversely, some high-risk assets have signs of being sought after, such as cryptocurrencies, Japanese stocks, and Chinese stocks. So the last article mentioned that the importance of decentralized investing becomes relatively important.
The latest map of the United Nations Bureau
The latest chart shows that officials still expect to have room for a 0.5 percent rate cut this year, and expect another 1 percent rate cut next year, to about 3.4 percent by the end of next year, and a further decline to about 2.9 percent by the end of 2026. While interest rates in 2027 and 2026 won't change much, suggesting officials are guessing the rate cut cycle will end roughly in 2026.
Compared to June, the most recent chart compares with short-term interest rates. Interest rates in 2026 are expected to fall by only 0.25 percentage points compared to June, and long-term rates are almost unchanged. This reflects the fact that the Fed's view of the economic outlook remains cautious. This has also led the markets to say that the Fed's interest rate policy is falling behind the economic trend, but Powell defended it this time, saying that the Fed is not lagging behind, and the Bureau believes that this is the right time to cut interest rates.
In fact, according to historical data on interest rate futures, the market also began to speculate that the Fed would cut interest rates by 50 points last Friday, September 13 (many had guessed that interest rate futures prices fell by 25 points before September 13). There are two main reasons for the author's personal opinion:
Economic data is widely expected to win:
Following the weak employment data released on 6 September, the last two weeks of economic data have shown gains in the market, such as CPI showing that the easing pressure is growing, the University of Michigan CPI is expected to gain preliminary values, and US retail sales data are also beating market expectations, such as signs that the economy is easing. Slow pressure, but does not cause depression. At the same time, there is the urgency of a 50 percent rate cut, which will effectively prevent the risk of “economic hard ground”.
The Last Vote Before the U.S. Election
The United States general election will be held on November 5, 2024, and the next general election will be held on November 7, 2024. If the conservative strategy of cutting interest rates by 0.25 percentage points, as in the past, will force officials to agree on a possible emergency rate cut before the election, which will undoubtedly be seen as an influence on the election. To avoid the above situation, the members passed an interest rate reduction of 0.5 cm by 11 votes to 1.
Latest US Interest Rate Futures
However, according to the latest interest rate futures, market views are still mixed with those of Fed officials. Markets continue to believe that the Fed's interest rate policy is lagging behind economic trends. The market expects another rate cut of 100% on 7 November, while the chance of a further 75 per cent rate cut over the year remains high at 77.6%, slightly more than 25 points on the official's latest chart.
However, the market also believes that the interest rate will fall by 100% to between 3 cm and 3.25 cm in the next year, i.e. 17 September 2025, with interest rates expected to remain unchanged. Interest rates are clearly declining in the short term, but little change is expected in the long term, which is precisely the prospect of “softening of the economy” mentioned above.
It is worth noting that the yield curve of the US Treasury has begun to return to normalisation (i.e. the end of the backlog). At the close of execution, the 2-year US Treasury yield is below 75pc compared to the 10-year Treasury bond.
This is another signal that the economy is poised to gradually emerge from recession. It is also a crucial moment. In the next two years' interest rate reduction cycle, the focus will be on preventing the risk of a recession, and AI investments are known to be the biggest hit right now. As long as technology maintains good convertibility, U.S. stocks should be expected to avoid a downward slide in valuations. Therefore, in the next fiscal quarter, the performance and guidance of US companies will be key.
Effects of Fed Disputes on Stock Markets
According to analysts, the latest Fed rate results are still cautious, and the news is not a big stimulus, given that stocks have been on the rise before. But with Japanese stocks, which have been suffering from Japanese stocks and Chinese stocks that have been overlooked by the market, shorting may follow the news.
Subsequent Japanese Stock Deployment
Nikkei Stock ETF Recommendations as Anti-Surge
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Deployment of dividend bearing Hong Kong shares
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Futu Securities Chief Analyst Chilling
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