Bank of America(US:BAC) Sou Hu Cai Jing·2025-09-21 23:57Core Viewpoint - The Federal Reserve announced a reduction in the federal funds rate target range from 4.25%-4.5% to 4.0%-4.25%, marking a 25 basis point cut, which aligns with market expectations. This is the first rate cut since the Fed began its current easing cycle in September of last year, following three consecutive cuts in late 2022 and a pause from January to July of this year [1]. Group 1: Impact on Global Asset Allocation - The Fed's rate cut is expected to influence global capital flows, as changes in U.S. interest rates and the dollar's value will affect global liquidity [5][11]. - The resumption of rate cuts is likely to boost U.S. stock markets from both interest rate and economic fundamentals perspectives, although high valuations remain a concern. Non-U.S. markets may present more attractive valuations, leading to a continued trend of rebalancing between U.S. and non-U.S. assets [5][15]. - Historical trends indicate that during periods of dollar depreciation, emerging markets typically outperform developed markets, suggesting a potential for significant relative returns [5][15]. Group 2: Performance of Chinese Assets - Hong Kong stocks are expected to benefit from a shift in global liquidity and a turning point in mainland earnings. A-shares still exhibit a valuation discount, with potential for valuation recovery driven by global asset reallocation demands, particularly in technology stocks that are sensitive to liquidity [5][15]. - The Fed's rate cut is anticipated to lower real interest rates, which could increase gold futures positions and support gold prices. Additionally, rising credit risks associated with the dollar may further drive the rebalancing of global central bank reserve assets [5][16]. Group 3: Changes in Global Reserve Assets - Since 2022, global central bank gold purchases have surged, exceeding 1,000 tons annually for three consecutive years, indicating a significant shift in the demand landscape for gold as a reserve asset [9]. - The share of gold in global central bank reserves has surpassed U.S. Treasury securities for the first time since 1996, reflecting a growing preference for gold amid concerns over U.S. economic policies [9][17]. Group 4: Market Reactions and Future Outlook - Following the Fed's announcement, U.S. Treasury yields and the dollar index experienced a rebound, indicating market reactions to the perceived implications of the rate cut [12][13]. - The Fed's independence is under scrutiny due to political pressures, which could impact future monetary policy and the dollar's international credibility. A loss of independence may lead to a long-term decline in the dollar's value [13][14]. - The current economic policy environment in the U.S. is drawing comparisons to historical events that led to significant shifts in the dollar's strength, suggesting potential for ongoing volatility in the currency's value [14].