US equity indices hovered around all-time highs, with the S&P500 surpassing 5000 for the first time this week. Mega-tech names reported strong earnings, driving the Nasdaq up by more than 2%.
China: Before the Lunar New Year holiday, President Xi met with financial regulators to discuss the Chinese stock markets' underperformance. The regulators introduced new short-selling rules and expanded the plan of stock buyback. Markets believe that it is possible to have further stimulus after the holiday.
Bond Issuance: The 10Y treasury yield jumped after the USD120 billion of bonds were issued this week, with USD42 billion in the 10Y bond auction. It indicated the demand was strong despite the increase in supply.
Japan: The Bank of Japan mentioned that they are going to stop buying risky assets and ruled out rapid rate hikes. Markets interpreted it as a less hawkish signal. USD/JPY went up to the level of around 150.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
UBS: We believe the rally in equities is well-supported even though they are pricing in a lot of good news currently. We expect a further boost in the “Goldilocks” scenario, in which growth is stronger than expected and inflation is under control.
Bank of America: Although the small-caps showed some weakness recently, it suggests that there is an opportunity for them to play catch up. Historically, election year is favorable for small-caps to outperform.
Goldman Sachs: The Fed reiterated that a March cut is unlikely as they need more data to confirm that inflation is going to reach their target. Markets are expecting the first cut will be in May while it is likely that the path would be “later and steeper” - the first cut would be later.
Morgan Stanley: Corporate credit spreads are narrowing, given the rebound in issuance and the rate cut expectation. The spreads have been pushed to a low level due to the better order books and tighter job market.
Goldman Sachs: All the economic data are still on track, including inflation, unemployment and non-manufacturing services data, which continue to reinforce the resilience of US economic growth.
J.P. Morgan: Although the nonfarm payroll job reports showed a strong number, the job numbers have had a low correlation with first rate cut historically. The impact of wages which affected inflation is more important.
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