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Weekly Market Update (August 27, 2023)

Updated: Sep 4, 2023



HIGHLIGHTS

Economic growth remains weak in China and Europe, while it is resilient in the US. In Emerging Asia, the delay in normalization of monetary policies will be a potential risk to economic growth.


Jackson Hole: Powell delivered the speech in Jackson Hole this week, sharing insights on the policy themes. They will maintain the approach of monitoring data closely to make decisions. Markets believe the hiking cycle is finished with fund rate remaining in the 5.25-5.5% range within this year.


BRICS: The allies of major developing countries - BRICS (i.e. Brazil, Russia, India, China and South Africa) reached an agreement to let 6 more countries join, which are Saudi Arabia, UAE, Iran, Argentina, Egypt and Ethiopia. They are mostly non-ICC-aligned and oil producers. It is the first expansion in 13 years. The expansion is beneficial for global trade and builds a stronger alliance.


Eurozone: The economic data in the eurozone suggested that the job market is cooling. The resilience in the services sector is dropping, particularly in Germany. ECB is likely to keep the rate on hold in the coming meeting with a bias to tightening.


China Property: The property sector in China is expected to stay weak. The banks' net margins are narrowing. The People's Bank of China is expected to lower its funding costs by policy rate and RRR cuts.

 
MARKETS

Nasdaq

13,590.65

+2.26%

S&P 500

4,405.71

+0.82%

Dow

34,346.90

-0.45%

10-Year

4.24%

-1bps

Brent

84.66

-0.21%

DXY

104.19

+0.73%

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

 
VIEW FROM THE STREET

Equity

Goldman Sachs: Large funds rotated into cyclical instead of high-growth sectors, such as IT and Consumer Discretionary. The mega-tech stocks rallied early this year, and the returns have since broadened out. Funds decrease the exposure of growth stocks and increase the exposure of cyclical stocks such as Energy.


Morgan Stanley: The divergence between the US and China may spur opportunity. Due to the rate differentials, Chinese policymakers are forced to boost stimulus, and likely to be an aggressive one. It may spur a rally in the equities of emerging markets.

Fixed Income

J.P. Morgan: 10Y treasury yield hit its highest since 2007 as the minutes of the last meeting suggested that the Fed still saw upside risks to inflation. Volatility in rate will likely persist in the near term. Investors are taking shorter duration tactically. Meanwhile, they will look for chance to add duration when the policy trajectory becomes concrete.


UBS: The expectation of rate cut will push back the 10Y treasury yield to 3-3.5% in the coming 6 to 12 months. We expect more flow will be rotated from the US to emerging markets when the yields decline.

Economy

Morgan Stanley: USD’s relative value has risen due to the rate hike and economic growth post-COVID. In contrast, China worked on debt management, environmental issues, tech monopoly crackdowns and suppression of real estate speculation. It reduced consumer confidence and resulted in a weak recovery. Rate is lowered and RMB is weakened.


UBS: The labor market data will be important data to watch. Fed officials highlighted that they will have more confidence to claim their victory in fighting inflation and achieving their 2% target once they see the cooling of labor market.

 
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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