HIGHLIGHTS
US stock continued its downward trajectory with a biggest one-day decline since June 2020 on Wednesday. This week, NASDAQ fell more than 3%, and 2.32% for S&P 500 due to inflation and supply chain issues. Investors were spooked by the earning reports released by the US retailers. Walmart reported a lower than expected quarter earning result on Tuesday while Target mentioned rising cost for fuels, freight, wages and logistics would impact profit margins.
MARKETS
11,835.62 | -3.37% | |
S&P 500 | 3901.35 | -2.32% |
Dow | 31,261.91 | -2.32% |
10-Year | 2.79% | -10bps |
Brent Oil | 112.98 | +1.09% |
*Data as of market close. 5-day change ending on Friday.
KNOWLEDGE BANK
Central Bank Policy
​ | Interest Rate Policy | Balance Sheet Policy | Market Implied Pricing |
FED | Federal funds rate: 0.75–1.00% Last changed: May 2022 (+50bps) Prior change: March 2022 (+25bps) | Balance sheet size: 37% of GDP | Slightly hawkish |
ECB | Deposit facility rate: -0.50% Last changed: September 2019 (-10bps) | Balance sheet size: 65% of GDP | Dovish |
BoE | Bank Rate: 1.00% Last changed: May 2022 (+25bps) Prior change: March 2022 (+25bps) | ​Balance sheet size: 30% of GDP | Slightly dovish |
BoJ | Policy deposit rate: -0.10% Last changed: January 2016, when the Bank introduced its negative interest rate policy (NIRP) 10-year JGB yield target: ~0%, with tolerance band of -/+25bp (yield curve control policy) | Balance sheet size: 135% of GDP | Slightly dovish |
VIEWS FROM THE STREET
China Basic Materials
J.P. Morgan: 1) Cement output decreased nearly 20% YoY reflecting the impact of strict regulations in China and a weak demand in the infrastructure and property market. 2) Aluminum production remained low. We continue to believe China's peak carbon emission target will limit growth of coal based aluminum production. 3) EV production YoY growth rate slowed to 42%, largely due to lockdown. We saw a similar slowdown in demand for upstream EV materials as well. 4) Thermal coal production increased 10% YoY, raw coal import rose 8% in April while thermal power production decreased -12%. High domestic coal prices could be due to domestic transportation. We see downside risk once transportation normalizes.
Bond
J.P. Morgan: Bond rebounded this week amid the concerns of recession and Russian energy supplies. Slow growth in China and tightened financial conditions are causing the challenging environment for the bond market in EM. Focus on bonds with shorter duration due to inflation and increasing global terminal rates.
Credit
J.P. Morgan: Investment Grade(IG) bond price in the US is driven by the shortage of issuance and the overshot yield. The supply of IG bonds has dropped from USD$234bn to USD$30bn from March to May. The yield is recorded highest in the past decade, including the Covid in 2020.
Commodities
J.P. Morgan: Global supply capacity combined with the low inventory fuels the oil price. US diesel and EU Gasoil inventory records last week dropped to the lowest level in more than a decade.
China Economy
Deutsche Bank: Figures like retail sales, industrial production, fixed asset investment and property sales are all indicating a plunge of China's economy performance in April.