HIGHLIGHTS
US equities dropped this week, mainly driven by the disappointment in tech earnings and slowing economic growth. The sell-off led to a jump in market volatility with VIX hit 27, the highest level of the year.
US Job: The unemployment rate in the US increased higher than expected (4.3% actual vs 4.1% expected) and payrolls reported lower than expected (114k actual vs 175k expected). The disappointing job data triggered a decline in yields.
Fed: The Fed kept its rate unchanged at July’s meeting. Fed officials signaled that the bar of the September rate cut is not high, emphasizing the job data indicated normalization instead of weakening. Markets are pricing 25bps cuts by the end of the year.
BoJ: Bank of Japan (BoJ) hiked its interest rate by 25bps to 0.25% this week and decreased half of its monthly bond purchases by early 2026. Markets expect the next hike will likely be a 25bps cut in Jan 2025. Yen jumped 4.4% this week.
MARKETS
16,776.16 | -3.35% | |
S&P 500 | 5,346.56 | -2.06% |
Dow | 39,737.26 | -2.10% |
10-Year | 3.79% | -41bps |
Brent | 77.44 | -4.55% |
DXY | 103.22 | -1.05% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
UBS: Equity market in the US had been experiencing an unusually smooth rally until the middle of July this year. S&P500 had gone more than 250 trading sessions without a decline of higher than 2%. We expect higher volatility in the coming days due to the start of the rate-cut cycle and uncertainty of the payoff in the heavy AI investments.
J.P. Morgan: 8 out of 11 sectors are expected to contribute positively to EPS growth, led by technology with aggressive AI-related capex spending. Financial come next, driven by the margin expansion supported by the increasing investment banking and trading activities. Energy is expected to have the largest negative impact due to lowering refining margins.
Fixed Income
UBS: Global momentum toward lower rates continued to build this week. Bank of England announced its first cut of the cycle, and Fed also signaled clearly that a cut is coming. Markets start expecting a deeper rate-cut cycle, and we expect price appreciation in fixed income, especially for high-quality corporate and government bonds.
Morgan Stanley: Although fixed income outperforms over this business cycle, we remain vigilant. The chances for policy mistakes are increasing as we exit the Fed pause phase and start the rate-cutting period. The change of administration is also a risk that cannot be ignored.
Economy
Standard Chartered: The US economy is slowing, inflation is cooling, including a broader range of products and services, while unemployment is increasing. The recent backdrop would support the Fed to cut twice by year-end.
Goldman Sachs: The July labor report indicated a worse-than-expected job market in the US. The concerns over the consumer have intensified. We expect consumer spending and corporate sales growth will be weaker, thus the risks to consumer stocks are skewed to the downside.
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DISCLOSURE
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