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After Fed Chairman Powell signaled last week that interest rates would be cut in September, the main line of global financial markets has begun to trade around the Fed's interest rate cut cycle. Against this backdrop, U.S. Treasury yields of all maturities fell, and the U.S. dollar index also fell sharply, hitting a one-year low.

Currently, the risk appetite of global investors has been boosted, and various funds are also accelerating their re-positioning. On Monday, global non-US currencies collectively strengthened, with the RMB exchange rate rising to 7.11, while risky assets such as Asian technology stocks, gold, and Bitcoin attracted a large amount of capital inflows and saw a strong rise.

Non-US currencies surged

Last Friday, after Powell's speech, U.S. Treasury yields fell. During the Asian market trading session on Monday, the 10-year U.S. Treasury bond rate continued to decline, falling to around 3.785%, down nearly 100 basis points from the high point two months ago. On the same day, the Hong Kong dollar interbank lending rate generally fell. Among them, the overnight interest rate has fallen for six consecutive days to 3.21464%, a four-month low, while the one-month interbank lending rate related to the property market mortgage has fallen for seven consecutive days to 3.97345%, the lowest since April 24.

As U.S. bond yields fell sharply, the U.S. dollar index fell significantly, falling to the 100 mark. Last week, the U.S. dollar index fell by 1.70%, marking the fifth consecutive week of decline. Since the end of June, the Bloomberg U.S. dollar index has fallen by more than 4%.

At the same time, non-US currencies rose together, especially Asian currencies that depreciated sharply in the first half of this year, reversed across the board, and those undervalued currencies returned to their overall value. The MSCI Emerging Markets Currency Index hit a record high, reaching 1,766 points on August 26.

Currently, the RMB has risen to 7.11 against the US dollar, nearly recovering the decline at the beginning of the year. On August 26, the RMB central parity rate in the interbank foreign exchange market was raised by 219 basis points. According to data from the China Foreign Exchange Trading Center, the onshore RMB rose by 312 basis points against the US dollar last week to 7.1368; the offshore RMB rose by 470 basis points to 7.1161 against the US dollar.

In addition, the Singapore dollar rose to its highest point in nearly 10 years, while the Japanese yen rose sharply to 143.44, the highest level since August 5. The Korean won, which has long been weak against the US dollar, also appreciated sharply to 1326.61, the highest level since March.

The most reversal was in the Malaysian ringgit, which hit a 26-year low against the U.S. dollar in February and has risen 10% from this year's low. The Thai baht has also risen nearly 5% against the U.S. dollar in a month.

Investors repositioning

As the Federal Reserve's interest rate cut inflection point is established, investors' risk appetite has been significantly boosted, and international funds are also accelerating their re-positioning. For example, risky assets such as global stock funds and Bitcoin have attracted a large amount of capital inflows, and the trend of capital flowing back to emerging markets is particularly obvious.

On August 26, stock markets in Asia generally rose, with the benchmark index, the MSCI Asia Emerging Markets Index, rising 0.75%, a one-month high, and the Hang Seng Technology Index rising nearly 1%. Bitcoin prices also rose by 1.2% at one point, and last week's increase had reached 7.4%.

"This is the first time that Powell has officially expressed his dovish stance in recent years. I believe that positive incentives for global risk assets should be expected. Whether it is precious metals, commodities or global stock markets, they will all benefit from the establishment of the Fed's interest rate cut expectations." Zhu Bin, chief strategy analyst at Huafu Securities, believes that judging from the shift in the Fed's attitude, the impact on global assets is mainly on the denominator. Specifically, if the Fed cuts interest rates, the denominator of global assets will become smaller. In the case of a soft landing of the economy (i.e., the numerator remains stable), global asset prices will show an upward trend. Since China's capital account has not yet been fully opened, the response of A shares to the Fed's interest rate cut will be relatively weaker, but it is still expected to follow the rise of global assets.

Under the interest rate cut cycle, Hong Kong stocks are more resilient, especially the growth sector, which may make Hong Kong stocks one of the most obvious beneficiaries. It is worth noting that after the Fed started this round of interest rate hikes, Hong Kong stocks peaked in early 2021, and then the mainstream indexes fell by about 50%. The current Hang Seng Technology Index has fallen by nearly 70%, becoming a global valuation trough. Because of this, since the beginning of this year, southbound funds have been buying non-stop. As of the end of July, the net inflow of southbound funds was about HK$417.2 billion, exceeding the HK$318.8 billion for the whole year of 2023 and the HK$386.3 billion for the whole year of 2022.

Mou Yiling, a strategic analyst at Minsheng Securities, pointed out in a research report that for A-share investors, the current domestic risk-free interest rate is already low, resulting in the instability of the relationship between overseas risk-free interest rates and net purchases by overseas investors since October 2023. After the Fed's interest rate cut path is clear, with the recovery of the US real estate market and the increase in the proportion of global manufacturing activities, the increase in physical consumption will be certain, while China's resource producers are still undervalued due to supply constraints.

Precious metal prices surge

On August 26, under the expectation of the Federal Reserve's interest rate cut, the global precious metal prices soared sharply, base metals rose across the board, and most black commodities rose. Among them, the international spot gold price exceeded $2,520/ounce, and COMEX gold futures exceeded $2,560/ounce. The silver market was also strong. The international spot silver price successfully broke through the $30/ounce mark, and COMEX silver futures reached $30.60/ounce. In the domestic market, the main silver futures contract rose by nearly 3%, and the main gold futures contract rose by 0.91%.

Currently, fund managers' bullish bets on gold have jumped to the highest level in more than four years. According to the latest position report released by the U.S. Commodity Futures Trading Commission (CFTC), as of August 20, hedge funds and other large speculators increased their net long positions in gold by 7.8% to 236,749 contracts, the highest level since the beginning of 2020.

In addition, according to data from the Global Gold Council, global gold ETFs experienced their strongest month since April 2022, attracting $3.7 billion in inflows in July, the third consecutive month of inflows. Among them, inflows from Western countries took the lead, pushing the total assets of global gold ETFs to $246 billion.

Sha Chuan, fund manager of Tianhong Shanghai Gold ETF Link Fund, believes that the real trend of gold may emerge after the first interest rate cut, especially if accompanied by the expansion of geopolitical conflicts, which may further push up gold prices; in the medium and long term, current international relations are still dominated by confrontation, the US debt problem is difficult to reverse, the world pattern is evolving towards diversification, and expectations for central banks of various countries to increase their gold holdings remain.