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Weekly Market Update (August 13, 2023)



HIGHLIGHTS

Equity markets are mixed this week as regional banks' credit is downgraded, US treasury yields increased and economic headlines are weaker in China. Back-end treasury yields were staying at a high level. Markets are pricing a 30% chance of Fed hike by the meeting in November.


Cooldown or Not: Core CPI came in lower again in July, mainly driven by the airfares, rent and used car prices. Markets believe that inflation is cooling down while it may not be the case. Some of the components in the core CPI are seasonal, such as airfares. It may go up again during the summer travel season which will be reflected in the coming months.


Downgraded Banks: The small and mid-sized regional banks are downgraded. The capital requirements would increase significantly, with more regulation reviews coming. It may potentially affect other major banks later.


Oil: Oil prices increased this week, mainly driven by the OPEC output cuts and the increase in global demand. The continued cuts will potentially limit the oil inventories, leading to a potential jump in price by the end of the year.

 
MARKETS

Nasdaq

13,644.85

-1.90%

S&P 500

4,464.05

-0.31%

Dow

35,281.40

+0.62%

10-Year

4.17%

+11bps

Brent

86.62

+0.44%

DXY

102.85

+0.81%

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

 
VIEW FROM THE STREET

Equity

Goldman Sachs: US and Eurozone are expected to avoid recessions, leading to a rebound in global demand. Hiking cycle is reaching an end as inflation is declining. Thus, we expect to see inventory destocking and comeback in manufacturing and trade.


J.P. Morgan: Investors are more selective in US equities as the current valuations seem to be frothy. Margins are decent reported by the latest earnings while they may change later. It is suggested to diversify into several markets such as Chinese and Japanese equities. China's economy is expected to have more supportive policies and Japan government is reforming positively.

Fixed Income

Morgan Stanley: As the US Treasury General Account and deficit funding are at 6% of GDP, the record high, we expect the Treasury auction will be a lot larger than the previous forecast.


UBS: Senior bank bonds are offering higher yields than non-financial companies. The spread is wide for banks that are moved by the downgrade in credit rating from A’s to BBBs.


Economy

Goldman Sachs: Most of the major central banks are arriving at the end of the hiking cycle, and the developed market economies are likely to be on track for soft landing. Historically, hiking cycle that ended in soft landing is more likely to be followed by gradual rate cuts.


Barclays: Although inflation and wage data came in softer, whether the recent disinflation condition will persist is still in question. US PPI print came in hot, which reignite the concerns about the potential change in monetary policy.

 
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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