HIGHLIGHTS
Equities continue to drop this week due to the high pressures of higher for longer interest rates and elevated geopolitical tensions. Both Nasdaq and S&P500 pull back by around 5% from the peaks. Volatility jumped, with the volatility index (VIX) hitting the 2024 new high.
Gold: The uptrend of gold continues, mainly driven by the ongoing accumulation of central banks and increasing retail demand. Market participants are likely to increase allocation in commodities to hedge their tail risk from US election results.
Hawkish: Markets are questioning the likelihood of rate cuts this year due to the hawkish comments from Fed officials. One of them mentioned that a rate cut is unlikely to happen until the end of the year. Another one commented that even a rate hike is possible if the data warrants it. Recently, markets are pricing 1.5 rate cuts this year.
Capital Market: Equity capital markets activities continued to perform well. After the stellar listing performance of Reddit and Astera Labs, Ibotta performed strongly on the IPO day with an opening price 33% higher than the issuance price. As more companies have filed to go public recently, the IPO activity is expected to continue in the coming weeks.
MARKETS
15,282.01 | -5.52% | |
S&P 500 | 4,967.23 | -3.05% |
Dow | 37,986.40 | +0.01% |
10-Year | 4.65% | +15bps |
Brent | 87.20 | -3.34% |
DXY | 106.12 | +0.10% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Morgan Stanley: Small caps were expected to perform better than the previous years with the forecast of better economic growth and reflationary. However, it is unlikely to happen as rates are going to stay higher for longer. The divergence between mega caps and smaller caps will persist.
UBS: Yield-generating structured investments are recommended. If the investors expect moderate returns in the near term, this strategy would be a great tool - sell put and long bond, which could be a defensive way to increase exposure. The bond coupon could provide buffers against the price correction. The risks would be unfavorable changes in interest rates and implied volatility.
Fixed Income
Goldman Sachs: The slower pace of the Fed rate cut will not deter the ECB from starting its rate cut cycle in June. However, the divergence in policy does not equal the divergence in performance. European markets are unlikely to outperform significantly given the strength of the US economy.
Standard Chartered: We believe the likelihood of 10Y treasury yield went up to 5% is low. The direction of monetary policies tends toward rate cuts, and the inflation data does not support a reversal.
Economy
Goldman Sachs: The expectation of slower Fed cuts may affect other countries. Emerging markets in Asia will likely wait for the Fed to cut first. Cuts in the eurozone will also be shallower due to the recent sticky services inflation.
UBS: As the near-term geopolitical tensions increased, markets could stay choppy for a while. We prefer adding oil, gold and US treasuries to our portfolio to hedge against the risks. These assets are also supported by positive fundamentals.
KNOWLEDGE TRANSFER
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DISCLOSURE
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