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Weekly Market Update (August 06, 2023)



HIGHLIGHTS

After rating downgrade, the 10Y treasury yield jumped to 4.2% and retreated slightly after nonfarm payroll data. Equities were down badly, with S&P500 and Nasdaq dropping by about 2.1% and 2.8% respectively.


Downgraded: The US sovereign rating is downgraded by Fitch from AAA to AA+ due to the increasing debt burden of the government and the expectation of deterioration in the coming years. The last downgraded was in 2011 by S&P.


BoJ: After the surprising tweak in policy last week, the 10Y yield jumped to a 9-year high. Bank of Japan offered to buy back the 300 billion yen of bonds afterward in order to stabilize the yields and cool down the markets.


Eurozone: Q2 growth in the euro area is higher than expected. The labor markets are still resilient with the core CPI still lingering. ECB started to recognize the damage caused by the high interest rate, as seen in the PMI data.

 
MARKETS

Nasdaq

13,909.24

-2.85%

S&P 500

4,478.03

-2.27%

Dow

35,065.62

-1.11%

10-Year

4.06%

+9bps

Brent

86.24

+1.49%

DXY

102.02

+0.31%

*Data as of market close. 5-day change ending on Friday.

 
VIEW FROM THE STREET

Equity

Goldman Sachs: S&P500’s return in the previous 6 months was driven by micro factors instead of macro factors. Stock picking becomes more important in generating alpha, and more opportunities arise because of the higher dispersion.


UBS: Investors are suggested to look for the laggards in the markets, such as defensive, value and emerging markets. We can see evidence in the last month that the equal-weighted S&P500 outperformed the major index.

Fixed Income

UBS: We believe US credit remains attractive after the downgrade. Unlike the last downgrade in 2011 with the 10Y treasury yield dropping 50bps, it even went up this time. Also, outflows of funds focused on AAA bonds should be limited as many big holders are adjusting mandates to specifically refer to treasuries instead of AAA bonds.


Barclays: The rout in the bond market is a warning of the volatility ahead potentially. US treasury yields increased after the downgrade of rating and announcement of more debt issuance.


Economy

Morgan Stanley: Markets believe that headline inflation is the decisive factor in central bank policy setting and the scenario of soft-landing, but not the core inflation. Headline inflation is highly correlated to energy and food prices. As the supply-demand dynamics are imbalanced due to structural factors, the bull case is less likely to achieve.


J.P. Morgan: Fed is likely to keep a close eye on inflation. The CPI reports in July and August are playing an important role in the interest rate decision in the September meeting. Fed also highlighted that the Employment Cost Index (ECI) would be a critical indicator of wage gains.

 
KNOWLEDGE TRANSFER

Spirit & JetBlue Merger

Here's all you need to know about the major airline merger deal.


Elon Musk's Twitter

Here's all you need to know about the $44b Twitter deal.


London Metal Exchange

Here's all you need to know about the LME´s nickel lawsuit.


LUNA

Confused about what happened to UST and LUNA? Here's all you need to know about the event!


 
DISCLOSURE

This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.



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