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Global central banks have started cutting rates lately. On Sept. 18, 2024, the Federal Reserve implemented its first interest rate cut in four years, reducing the benchmark rate by half a percentage point (50 basis points). This move comes in response to cooling inflation and a slowdown in the labor market.
The Federal Open Market Committee reduced the key overnight borrowing rate to a range of 4.75%–5%. The move was widely anticipated. Several major central banks, including those in the Eurozone, U.K., Canada, Mexico, Switzerland, and Sweden, have already cut interest rates in response to slowing growth and easing inflation.
The Bank of Japan, which was tightening its policy unlike other central banks, also kept its benchmark interest rate steady at around 0.25% — the highest rate since 2008 — at the conclusion of a two-day meeting Friday. China also kept its key lending rates steady, with the one-year loan prime rate at 3.35% and the five-year LPR at 3.85%.
Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) might fall in the near term in this scenario. The ETF UUP lost 0.4% on Sept. 19, 2024, responding to the Fed’s interest rate cut. Investors should note that the U.S. dollar, for example, saw significant gains in 2022 as the Fed raised rates. We can expect the opposite to happen now.
Broader Economic and Market Effects
According to Richard Carter, head of fixed interest research at Quilter Cheviot, a rate cut from the Fed will likely affect asset prices worldwide, including gold and commodities, as quoted on CNBC. Gold ETF SPDR Gold Shares (GLD - Free Report) has gained 2.9% in the past one month. Gold, traditionally viewed as a hedge against inflation, hit a record high this week on the Fed's decision.
Commodities like oil, which are often priced in U.S. dollars, may also benefit from the rate cut. United States Oil Fund, LP (USO - Free Report) needs to be tracked closely. The ETF USO has gained 3.6% past week.
Time for Global Market ETFs?
A reduction in borrowing costs could stimulate global economic activity and increase demand for these goods. Emerging markets, in particular, are sensitive to U.S. monetary policy and could be more impacted by the Fed’s moves than larger economies. A Fed rate cut is especially beneficial for emerging market economies and currencies due to the probability of a weaker dollar.
The Fed rate cut would lower the cost of borrowing in U.S. dollars, which could create easier liquidity conditions for companies globally. According to Carter, lower U.S. interest rates would also reduce yields on U.S. assets like Treasury bonds, potentially making other markets more attractive by comparison.
Against this backdrop, below we highlight a few global equities exchange-traded funds (ETFs) that gained past week. These ETFs include LeaderShares Activist Leaders ETF (ACTV - Free Report) , Pacer Cash Cows Fund of Funds ETF (HERD - Free Report) , Alpha Architect Value Momentum Trend ETF (VMOT - Free Report) , Cambria Foreign Shareholder Yield ETF (FYLD - Free Report) , and Global X SuperDividend ETF (SDIV - Free Report) . All these ETFs have gained about 3% past week.
The ETF VMOT yields 3.66% annually, SDIV yields 10.59% annually, FYLD yields 5.36% annually, HERD ETF yields 2.99% annually and the ETF ACTV yields 1.17% annually.
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Global central banks have started cutting rates lately. On Sept. 18, 2024, the Federal Reserve implemented its first interest rate cut in four years, reducing the benchmark rate by half a percentage point (50 basis points). This move comes in response to cooling inflation and a slowdown in the labor market.
The Federal Open Market Committee reduced the key overnight borrowing rate to a range of 4.75%–5%. The move was widely anticipated. Several major central banks, including those in the Eurozone, U.K., Canada, Mexico, Switzerland, and Sweden, have already cut interest rates in response to slowing growth and easing inflation.
The Bank of Japan, which was tightening its policy unlike other central banks, also kept its benchmark interest rate steady at around 0.25% — the highest rate since 2008 — at the conclusion of a two-day meeting Friday. China also kept its key lending rates steady, with the one-year loan prime rate at 3.35% and the five-year LPR at 3.85%.
Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) might fall in the near term in this scenario. The ETF UUP lost 0.4% on Sept. 19, 2024, responding to the Fed’s interest rate cut. Investors should note that the U.S. dollar, for example, saw significant gains in 2022 as the Fed raised rates. We can expect the opposite to happen now.
Broader Economic and Market Effects
According to Richard Carter, head of fixed interest research at Quilter Cheviot, a rate cut from the Fed will likely affect asset prices worldwide, including gold and commodities, as quoted on CNBC. Gold ETF SPDR Gold Shares (GLD - Free Report) has gained 2.9% in the past one month. Gold, traditionally viewed as a hedge against inflation, hit a record high this week on the Fed's decision.
Commodities like oil, which are often priced in U.S. dollars, may also benefit from the rate cut. United States Oil Fund, LP (USO - Free Report) needs to be tracked closely. The ETF USO has gained 3.6% past week.
Time for Global Market ETFs?
A reduction in borrowing costs could stimulate global economic activity and increase demand for these goods. Emerging markets, in particular, are sensitive to U.S. monetary policy and could be more impacted by the Fed’s moves than larger economies. A Fed rate cut is especially beneficial for emerging market economies and currencies due to the probability of a weaker dollar.
The Fed rate cut would lower the cost of borrowing in U.S. dollars, which could create easier liquidity conditions for companies globally. According to Carter, lower U.S. interest rates would also reduce yields on U.S. assets like Treasury bonds, potentially making other markets more attractive by comparison.
Against this backdrop, below we highlight a few global equities exchange-traded funds (ETFs) that gained past week. These ETFs include LeaderShares Activist Leaders ETF (ACTV - Free Report) , Pacer Cash Cows Fund of Funds ETF (HERD - Free Report) , Alpha Architect Value Momentum Trend ETF (VMOT - Free Report) , Cambria Foreign Shareholder Yield ETF (FYLD - Free Report) , and Global X SuperDividend ETF (SDIV - Free Report) . All these ETFs have gained about 3% past week.
The ETF VMOT yields 3.66% annually, SDIV yields 10.59% annually, FYLD yields 5.36% annually, HERD ETF yields 2.99% annually and the ETF ACTV yields 1.17% annually.