HIGHLIGHTS
Stocks marked the first weekly down after the long weekly rally. Investors are being more cautious about the Fed’s rate hike after the hawkish speech from central bankers. Treasury yield went up. Dollar has its largest weekly growth since April 2020 due to the uncertain geopolitical backdrop and volatility of the market. Yields spiked up in several countries, where the yield of Treasury-10Y (US), Bund-10Y (Germany), and Gilt-10Y (UK) jumped 10bps, 13bps, and 10bps respectively.
Inflation Reduction Act: There is a 15% minimum effective tax for companies with profits higher than $1 billion. Large caps in S&P500 are expected to have more risks, while most companies may not see a direct impact.
Housing Market: US Existing Home Sales fell 5.9% in July, recorded as the lowest in two years. The sales also fell 22.4% YoY. The high cost of borrowing, the slowdown in construction, and the rapid demand drop are all contributing to this issue.
G20 Summit: Xi and Putin are both attending the G20 summit in November. It will be the first time they show up since the Russia-Ukraine conflicts and the tensions over Taiwan. Biden is also expected to attend while it is unclear if he will meet Putin. US proposed the removal of Russia’s membership in G20 earlier before, while Indonesia is acting as the peacemaker between the countries.
China Rate Cut: The 1Y Loan Prime Rate (LPR) will be cut by 10bps to 3.6%. Banks are also expected to have a more aggressive rate cut in 5Y LPR to stimulate housing demand. While some economists doubt the effect of low rates can actually spur bank lending as banks are unwilling to loan. Banks are piled with cash, potentially leading to a liquidity trap.
MARKETS
12,705.22 | -2.62% | |
S&P 500 | 4,228.48 | -1.21% |
Dow | 33,706.74 | -0.16% |
10-Year | 2.98% | +13bps |
Brent | 96.72 | -1.46% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: We predict a roughly 1% lower S&P 500 earning per share in 2023. However, aggregate earnings are still expected to grow even after considering the impact of the proposed tax increase.
Morgan Stanley: It is not uncommon for stocks to rally during a bear market, especially a 20% or more decline. Such rallies averaged 18% while the current rally is 16.7% since the lowest point in mid-June. The rebound is mainly contributed by the hope of policy reversal and inflation has peaked.
Economy
UBS: Inflation is moving in the direction of the soft-landing scenario. More than 30% of the items in CPI basket have dropped, including gasoline, airfares, and automobile rentals. CPI is expected to be flat again in the coming month as gas prices and airfares have fallen even further.
Fixed Income
Morgan Stanley: The US Government Securities Liquidity Index has tightened since July last year, while the real interest rate bottomed and bond market volatility was being picked up in the same period of time. Liquidity is expected to get even worse as interest rates are expected to rise and the bank reserve ratios will be adjusted.
Commodity
Goldman Sachs: According to the IEA’s report, they forecasted an oil demand hike of 380k bbl/day (barrels per day), resulting in a total demand increase to 2.1 million bbl/day this year. Market has more confidence in the fundamental tailwind of oil.
Currency
Bank of America: The strong dollar is supported by the monetary tightening and the rising adverse geopolitical crosscurrents. It will be harder to unwind when it is more overvalued.
UBS: Swiss Franc is beneficial from the dollar fell across the board after CPI. However, dollar strength remains intact when compared to Euro and Sterling, which is based on the energy supply shortages and political uncertainty in the eurozone and the UK in the coming months.
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.
Comentarios