HIGHLIGHTS
US equities remained flat this week. 10Y treasury yields dropped due to the expectation of rate cut in September. Investors returning from vacations may not believe the volatility reports when they look at the changes in their portfolios. The month-to-date data masks much bigger moves.
Jackson Hole: Fed officials signaled that a rate cut is coming in September, but the pace and timing would be data-dependant. They expressed confidence in inflation but highlighted the risks in labor market. If the coming August job report is not as strong as expected, a 50bps rate cut is possible.
Eurozone: European Central Bank (ECB) is expected to continue cutting rate, mainly driven by the decline in economic activities. As the largest country member of ECB, GDP in Germany contracted surprisingly and missed expectations. More economic data is coming, such as jobs and inflation before their next meeting.
August: There is a significant shift in the market drivers in August, and market participants should catch up on the narrative changes. Probability of Harris becoming president is rising, according to the national polls. Investors should be aware of overexposure to election-sensitive sectors. Besides, outlook of rate cuts has shifted, and labor data has become more important.
MARKETS
17,877.79 | +1.40% | |
S&P 500 | 5,634.61 | +1.45% |
Dow | 41,175.08 | +1.27% |
10-Year | 3.80% | -9bps |
Brent | 78.24 | -1.75% |
DXY | 100.68 | -1.68% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Bank of America: Historically, volatility is normal and may present attractive return opportunities, especially for long term investors. We believe economy is normalizing, monetary easing is coming, corporate profits are healthy, and advancements in AI are likely to support growth.
Standard Chartered: We believe soft landing is achievable as rate cuts from Fed could extend the economic cycle. US equities are likely to outperform global equities in this case. Technology and communication sectors are favorable, with AI theme remaining the key for sentiment.
Fixed Income
Goldman Sachs: Volatility is stickier than spreads. Spreads have rebounded back to the level before the massive sell-off, while the implied volatility on major macro indices remains high. It indicates that investors are not sure about the narrative that Fed is behind the curve, and the burden on September job report is high.
Morgan Stanley: The market disruption in the previous weeks are mainly driven by the technical trade unwinds and investors repositioning speculative hedges. However, the credit moves are modest. It has reinforced our confidence in corporate cash flow. Remain overweight investment grade corporate credit.
Economy
Barclays: The message from Jackson Hole confirms the Fed to join the global easing cycle with the support of disinflation progress. Economic data in euro area remains soft, indicating a sub-trend growth.
UBS: US dollar is likely to face downward pressure, as central banks in other countries are expected to cut rate less aggressively than Fed. Swiss National bank may be near the end of its easing cycle, and Reserve Bank of Australia is unlikely to start easing until early next year.
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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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