Guotai Haitong Overseas Strategy: How will asset prices evolve with the Federal Reserve's interest rate cuts?

According to the Zhitong Finance APP, Guotai Haitong Securities released a research report stating that the Federal Reserve's interest rate cuts will significantly affect the trends of stocks, bonds, and foreign exchange assets, while the trends of commodities are not obvious. The winning rate of equities increases one month after a preventive rate cut, and U.S. Treasury yields typically decline after a rate cut. ① Stocks: The winning rate of equity assets during the preventive rate cut period is higher, while the performance during the accommodative rate cut depends on the recovery of fundamentals, with A-shares showing some independence. ② Bonds: The probability of U.S. Treasury yields declining during accommodative rate cuts is high, and their trends are uncertain after preventive rate cuts, while most Chinese bond yields decline after a rate cut, with no obvious patterns for European and Japanese bonds. ③ Exchange rates: In the early stages of a rate cut, the U.S. dollar shows mixed performance, but 2-3 months after the rate cut, the dollar tends to depreciate under recessionary rate cuts and appreciates under preventive rate cuts, with the RMB showing relative independence. ④ Commodities: Gold has a higher winning rate during preventive rate cuts and greater upward elasticity during accommodative rate cuts, while oil prices are less correlated with rate cuts and are more influenced by supply and demand dynamics.

Since 1982, the Federal Reserve has conducted 4 accommodative rate cuts and 6 preventive rate cuts. Based on the purpose of the rate cuts, they can be divided into accommodative and preventive rate cuts. The main difference between the two is whether the U.S. economy has entered a recession at the time of the cut. Accommodative rate cuts are common after regional/global crises, such as the bursting of the tech bubble in 2001 and the financial crisis in 2008, characterized by large cuts and long durations; preventive rate cuts often occur when the economy shows signs of slowing, triggered by various specific reasons, with smaller cuts and shorter durations.

The Federal Reserve's rate cuts will significantly affect the trends of stocks, bonds, and foreign exchange assets, while the trends of commodities are not obvious. Observing the performance of various major asset prices during 10 complete rate cut cycles reveals that: ① Equity assets have a higher winning rate during preventive rate cuts, while they are likely to decline during accommodative rate cuts. ② U.S. Treasury yields have a higher probability of declining during accommodative rate cuts, while the trends during preventive rate cuts are uncertain. ③ During the rate cut period, the strength of the dollar varies, the RMB shows independent trends, and the yen and euro appreciate on average. ④ The relationship between commodity prices and rate cuts is weak, with gold showing a higher average increase during accommodative rate cuts.

The winning rate of equities increases one month after a preventive rate cut, and U.S. Treasury yields typically decline after a rate cut. Furthermore, reviewing the price trends of various major asset classes within 30/60/90/120/150/180 days after the first rate cut in 10 rate cut cycles reveals that: ① Equities: The winning rate increases one month after a preventive rate cut, while the performance during accommodative rate cuts is related to the recovery of fundamentals. ② Bonds: U.S. Treasury yields typically decline after a rate cut, with Chinese bond yields decreasing in the short term, while there are no obvious patterns for German and Japanese bonds. ③ Foreign exchange: The dollar's performance is uncertain in the early stages of a rate cut, with differentiation occurring 2-3 months after the rate cut under preventive/recessionary conditions. ④ Commodities: The upward elasticity of gold prices is greater after accommodative rate cuts, while oil prices are less correlated with rate cuts