Core Viewpoint - The Federal Reserve has lowered the target range for the federal funds rate from 4.00%-4.25% to 3.75%-4.00%, marking a 25 basis point cut, and has decided to end quantitative tightening (QT) and plans to conclude balance sheet reduction in one month [1] Group 1 - The cessation of balance sheet reduction will end the passive liquidity withdrawal from the financial system, which is expected to alleviate tensions in the dollar financing market [1] - After stopping the balance sheet reduction, the supply of dollar liquidity may stabilize, potentially narrowing the spread between SOFR (Secured Overnight Financing Rate) and EFFR (Effective Federal Funds Rate), enhancing the downward momentum of global dollar financing costs [1] - The improvement in global liquidity and the decline of the dollar are seen as positive for manufacturing countries' exports, especially after two years of strong dollar-induced liquidity tightening that exacerbated capital outflows and currency depreciation pressures in emerging markets [1] Group 2 - The end of the Fed's balance sheet reduction is expected to ease expectations of a "dollar shortage," potentially narrowing sovereign debt spreads in emerging markets and enhancing capital inflow momentum, which may benefit the valuation of emerging market stocks [1] - This change is anticipated to support upward revisions in corporate earnings and provide short-term support for stock performance [2] - In the bond market, short-term rates may decline with the policy shift, while long-term rates may remain resilient due to fiscal and term premium constraints, leading to a steeper yield curve [2] - Gold may receive further support in the context of declining real interest rates and increased institutional risk premium, particularly concerning the potential weakening of the Fed's independence [2]