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Weekly Market Update (December 25, 2022)



HIGHLIGHTS

S&P500 and Nasdaq still recorded a loss last week despite the rebound on Friday. The 10Y treasury yield jumped to around 3.75%. USD dropped slightly this week. The sudden gain in the yen encourages Japanese investors to bring the money home, which may contribute to the dollar selloff. Commodity markets had a positive week, ranging from oil to precious metals.

Oil Price Cap: Russia said it may cut oil production by up to 700k barrels per day in response to the price cap on Russian oil exports. The size of the cut is not insignificant as markets are expecting a rebound in China demand. Russia officials reiterated that they are not selling oil to countries that use the price cap, and they are rerouting their export to Asia.

BoJ: Bank of Japan (BoJ) surprised the market with the earlier-than-expected decision to widen its yield curve control (YCC) range for 10Y government bond yield from +/-0.25% to +/-0.5%. The yen jumped more than 2% against the US dollar after the announcement. The decision has marked the end of the ultra-loose policy, even if it is a minor step in the policy normalization process.


China: COVID cases in china surged, causing a slump in economic activity. China is planning for its reopening and to cut the quarantine requirement for foreign travelers in the coming month. Meanwhile, the number of COVID cases has pumped up to 1 million cases per day, according to the estimation. We will see if there will be any change in the reopening plan based on the recent situation.

 
MARKETS

Nasdaq

10,497.86

-1.94%

S&P 500

3,844.82

-0.20%

Dow

33,203.93

+0.86%

10-Year

3.75%

+27bps

Brent

83.92

+5.91%

DXY

104.31

-0.51%

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

 
VIEW FROM THE STREET

Equity

Morgan Stanley: In large caps, the performance premium of value stocks over growth stocks is about 17%. High dividend yield stocks are outperforming S&P500. Non-US stocks are better than US stocks, which the emerging markets equities have beaten the Nasdaq by 8% in the last quarter.


Credit Suisse: As China authorities have officially moved away from the Zero-COVID policy to reopen gradually, it is a good time to increase exposure in China equities, including healthcare, consumer staples and tourism sectors. Consumer activities should pick up more significantly in the next quarter.

Fixed Income

Morgan Stanley: Although the Fed’s comments were hawkish and pushed out the guidance of first rate cut, the market only discounted 25-50bps more hikes and expects to see aggressive rate cuts by June. However, there is still room for Fed to deliver a negative surprise given the loose financial condition.


UBS: High-grade and investment-grade bonds are offering attractive returns with protection from recession risks. As the Fed is more advanced than the ECB in terms of tightening cycle, and quantitative tightening in the US is already underway, 10Y US Treasuries are expected to outperform 10Y French OATs.


Economy

J.P. Morgan: Fed has expressed its hawkish stance at the FOMC meeting, maintaining its higher-for-longer monetary policy. Fed has also emphasized the lagged inflation data, implying that a pivot of policy will be later than expected, making a soft landing more difficult.


Julius Baer: The Fed and ECB both slowed their pace of rate hikes and delivered their hawkish outlook on rates. This keeps the financial condition tight and curbs market optimism.

 
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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