Overnight, the Federal Reserve's first interest rate cut in four years has boosted investor risk appetite, with stock markets in Europe and America rising across the board.

The Dow Jones Industrial Average in the U.S. stock market broke through 42,000 points for the first time, and the S&P 500 closed above 5,700 points, both setting new intraday and closing highs.

The Nasdaq Composite once surged by 3%.

Small and medium-sized enterprises are expected to benefit from the operational borrowing costs in a low-interest-rate environment, with the Russell 2000 small-cap index rising by 2.1%.

Looking at sectors, technology stocks led the gains, with the "Seven Sisters" of tech stocks soaring to an all-time high.

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Defensive sectors, seen as bond alternatives, performed poorly, including real estate, utilities, and consumer staples, all of which declined, with the largest drop being 0.58%.

U.S. Treasury yields showed mixed movements.

Short-term Treasury yields, which are more sensitive to interest rate policies, closed down by 2.53 basis points, at 3.5918%, while the 10-year benchmark U.S. Treasury yield rose by more than 2 basis points, at 3.7245%, reaching its highest level in two weeks at one point.

The 2/10-year Treasury yield curve continued its bear steepening trend, now the steepest since June 2022.

Spot gold continued to set a new historical high.

The U.S. dollar fluctuated significantly, rising to an intraday high before almost giving up all its gains, and ultimately closed up by 0.03%.

Bitcoin surged, touching a one-month high of $64,000 per coin during the trading session.

Jonathan Cohn, Head of U.S. Rates Strategy at Nomura Securities, said: "Although Powell's comments and the dot plot pushed back the prospect of a further 50 basis point rate cut, the significant rate cut seems to have increased the likelihood of a soft landing, which supports a significant rise in risk assets."

Overnight, U.S. Treasury prices showed divergence, with medium to long-term Treasury prices falling, while short-term Treasury prices rose.

Why is that?

The movement of bond yields is related to expectations of economic growth and Federal Reserve interest rate policies.

The main reason for the rise in medium to long-term Treasury yields is the risk premium.

Considering that after the Federal Reserve's significant 50 basis point rate cut, the financial environment will become more relaxed, and inflation expectations will rise again, it means that the risk premium for investing in long-term bonds increases, leading to a decrease in demand for medium to long-term U.S. Treasuries, and their prices fall accordingly.

For short-term U.S. Treasuries, the rate cut means that the nominal yield of newly issued bonds decreases, making existing bonds more attractive, and their prices rise accordingly.

At the same time, data released by the U.S. Department of Labor overnight showed that the number of initial jobless claims for the week ending September 14 fell to a four-month low, below market expectations, also suggesting a prospect of a warming labor market and a rebound in social demand.

Economist Ed Yardeni, who has long been following the Federal Reserve, commented: "The bond market does not believe that inflation will be lower in the future because the Federal Reserve is stepping on the gas pedal.

Perhaps the current economy does not need so much stimulus."