Introduction

The "Federal Reserve's decision to lower the target range of the federal funds rate by 50 basis points" this piece of good news quickly ignited the entire market, and the market's reaction can be seen from the rise in U.S. stock indices, as well as commodities such as gold and crude oil.

Then came another sharp dive, although the three major stock indices set new highs during the trading day, but for investors, such a sharp dive is still caught off guard.

So what reasons would cause the market to have such a trend, and even after the Federal Reserve announced the rate cut, there would be such a reaction?

The United States once again introduced a rate cut measure after 10 years, what is the deep meaning behind this?

What impact will the rate cut have on the global stock market and commodities?

The United States once again introduced a rate cut measure.

The Federal Reserve announced in the early morning of March 16, 2022, Beijing time, that after a meeting vote, it decided to lower the target range of the federal funds rate by 50 basis points, from the original 5.25%-5.50% to 4.75%-5.00%.

The rate cut measure is a function previously undertaken by the Federal Reserve to regulate national economic growth and control inflation.

Previously, in June 2007, the U.S. financial crisis broke out, and U.S. financial institutions went bankrupt. In this situation, the Federal Reserve chose to expand the tight monetary policy of liquidity contraction to curb the money supply, which would not fully guarantee national economic activities.The real economy of a country would thus be affected, but this move did not work out, and the U.S. stock market also plummeted. After the U.S. stock market broke, it also stimulated the global stock market.

To save the U.S. financial market, the Federal Reserve has taken multiple interest rate cuts. After the interest rate cuts, it did stabilize the U.S. stock market to a certain extent and also promoted economic growth and increased the momentum of corporate production and operation.

However, under these circumstances, the recovery speed of the country's real economy is not so fast. The unemployment rate in the United States and the cost of living are constantly increasing. The Federal Reserve's previous interest rate cuts were precisely to regulate such phenomena.

Interest rate cuts will stimulate corporate investment in financial capital because reducing lending rates will reduce corporate debt costs. But only when companies truly engage in production and operation and create more jobs can this stimulate the growth of the country's real economy to a certain extent.

When stagflation occurs, companies will choose to invest and manage the remaining funds. The decline in loan interest rates will bring an increase in loan formation. Everyone chooses to invest and manage, so there will definitely be some capital outflow, which is a manifestation of stagflation.

Therefore, to avoid this situation, the Federal Reserve needs to control the magnitude and timing of interest rate cuts.

If the interest rate cut is too large, it will stimulate corporate investment behavior and only choose to invest and manage, leading to stagflation.

In terms of the timing of interest rate cuts, it is also necessary to wait until the country shows obvious signs of economic downturn, so that the effect of interest rate cuts will be better, thereby playing an economic adjustment role.

Federal Reserve interest rate cut expectations.

In the United States last month, the CPI rose 7.5% year-on-year and 0.6% month-on-month, reaching the highest value in 13 years. For the Federal Reserve under the monetary background, it is even more afraid to easily relax the current monetary situation.Under the influence of the U.S. stock market and the demands of President Joe Biden, the Federal Reserve is urged to adopt more aggressive monetary policies to stimulate the U.S. economic recovery and reverse the country's economic growth rate. In this predicament, only interest rate cuts seem to satisfy everyone.

However, things are not that simple. Interest rate cuts have already pushed the Federal Reserve's monetary policy into a dilemma. Any increase or maintenance of interest rates could lead the market to believe that the Fed is taking more severe measures to control inflation, which would result in market instability and, naturally, a plunge in the stock market.

The extent of interest rate cuts is also difficult to gauge. Such monetary policies could also expose the U.S. to domestic inflationary pressures, and a decline in capital in the securities market could lead to instability in other industries. But this situation is an inevitable choice, and one must select the least risky option among the risks.

The U.S. would release expectations of interest rate cuts, which would cause fluctuations in commodity prices. These fluctuations could then lead to significant stock market volatility. If the Federal Reserve makes a decision, it would affect the global financial market.

The Federal Reserve's interest rate cut strategy followed the previous U.S. financial crisis, during which the Chinese yuan exchange rate remained stable, and Bitcoin experienced a rebound. Once such a decision is made, all markets could instantly become chaotic.

The impact of the Federal Reserve's interest rate cuts on the global market.

Before the Federal Reserve's interest rate cut, the U.S. stock index was still visible. However, as soon as the news of the rate cut was released, the U.S. stock index, as well as gold and oil, all plummeted. The Nasdaq, S&P, and Dow Jones, the three major stock indices, reached new highs during trading.

In anticipation of the U.S. interest rate cut, the major European stock markets fluctuated a day in advance. The UK's FTSE 100 index fell by 1.1%, confirming its lead.

The French CAC 40 index fell by 1.51%, and the German DAX 30 index fell by 1.38%. Overall, the decline was not that significant, but for China's A-share market, such news did not provide a boost.

The three major A-share indices individually rose, but the increase was relatively small, with only 0.01%, 0.03%, and 0.14% increases. However, the Shanghai and Shenzhen markets maintained a relatively stable trend.The China concept stock index, following the news of interest rate cuts, also set a new high along with the U.S. stock indices, but the subsequent plunge was quite dramatic, with a drop of about 7%.

Among the popular Chinese concept stocks, the decline in stocks such as NIO, XPeng Motors, and Li Auto was also significant, with NIO's stock falling by nearly 11%, XPeng Motors by nearly 4%, and Li Auto by nearly 6%.

From this, it can be seen that Chinese concept stocks are greatly affected by the news of interest rate cuts, and the impact of the U.S. stock trend on A-shares is self-evident. However, why did A-shares not rise but instead fall after the U.S. announced the interest rate cut?

The impact of interest rate cuts on the A-share market.

After the Federal Reserve announced the interest rate cut, it would be logical that a lot of capital would flow into the A-share market. The reason is simple: as the world's largest economy and the leading stock market, the United States has the highest market value globally, and its news affects the global stock market.

The U.S. stock index took a rise-then-fall trend, while A-shares would take a delayed rise, but the U.S. stock plunge would also lead to a significant drop in A-shares. Such judgments are mostly based on the historical context of the Federal Reserve's interest rate cuts, and in fact, they follow suit.

Historical data shows that after each interest rate cut by the Federal Reserve, A-shares would perform very well. However, the current situation is somewhat different from past cuts. After past cuts, the A-share market showed a more enthusiastic response to the Federal Reserve's rate cuts.

The current situation is undoubtedly special. The Federal Reserve's interest rate cut this time is also the first in 10 years, and the Federal Reserve has repeatedly claimed that this cut is to stimulate the U.S. and even the global economy, which is actually good news. However, A-shares did not rise.

It may be because China is currently in the period of the Two Sessions, and everything in the capital market will be centered around the Two Sessions. After the Two Sessions are held, China will gradually return to normal and enter a stable development phase, but the current stock market trend is not easy to judge.

The trend of A-shares may continue to be affected by the international market. In market expectations, the Federal Reserve's interest rate cut this time is intended to bring stronger support to the economy, mainly to keep the U.S. stock market running and also to drive other global stock markets.Conclusion

The Federal Reserve's interest rate cut this time, along with the performance of stock indices in the external market, will drive the performance of China's stock market. However, due to the current not very optimistic situation of the epidemic in our country, the trend of China's A-share market needs to be observed in the short term.

It is expected that China's stock market will usher in development dividends after the domestic epidemic is controlled. However, this is one of the expectations, but with the emergence of various news, the impact on the market will also be different.

This also requires everyone to grasp according to the actual situation and not blindly follow the trend.