HIGHLIGHTS
S&P500 hit a new high again early this week amid geopolitical and trade tensions. 10Y treasury yields were steady. Markets are pricing one rate cut in 2025 according to the futures markets.
Ceasefire: Markets are expecting a potential resolution of the Ukraine war. European equities reacted positively and are up around 12% since the start of the year. The peace deal could be a boost while the terms and process will matter for it to be durable.
Housing: The US housing starts data dropped almost 10% in January, below economist expectations. The decline indicated that there are concerns over high mortgage rates, increasing housing prices and higher inventory levels.
Eurozone: European Central Bank (ECB) is considering a pause or end of the rate cut cycle. Inflation in the eurozone increased to 2.5% in January while output only increased 1% in the last quarter. Markets are pricing 72bps cuts this year.
MARKETS
19,524.01 | -2.51% | |
S&P 500 | 6,013.13 | -1.66% |
Dow | 43,428.02 | -2.51% |
10-Year | 4.42% | -5bps |
Brent | 73.83 | -0.99% |
DXY | 106.64 | -0.14% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: Chinese tech stocks rallied since January after the struggle of recent years. Thanks to DeepSeek, investors now re-evaluate the internet names in China, leading to eyes on stocks like Alibaba. A basket of Chinese internet stocks went up more than 6% this week.
UBS: Although market is pricing partially toward the end of the Ukraine war, we do not rule out the possibility of further escalation of the war. It could lead to negative shocks for the markets and we believe current below-average volatility is mispriced.
Fixed Income
Standard Chartered: We continue to think developed-market high-yield bonds have an attractive risk-reward ratio given the inflation debate and stable growth outlook. Although the credit spread valuations are not low, the strong growth and high credit quality can keep the spreads narrow. Investors are able to earn higher yields in that case.
Julius Baer: An end of Ukraine war would lead to tighter spreads in bond markets. In Europe, the curve steepened with the risk-free yields higher on the prospects of more defense-related spending. The tight spreads may not last for long as the economic struggles in Europe are only marginally routed in the Ukraine war.
Economy
Goldman Sachs: Fed’s minutes mentioned the increase in government debt, leading to a drop in 2Y yields this week, as they are the policy-sensitive ones. Fed also mentioned potential pausing or slowing down the balance sheet runoff because of the debt ceiling. The reserve balances could be affected.
Morgan Stanley: Commercial real estate in the US has been under pressure since the pandemic. However, there has been significant change recently as the management sentiment toward hybrid work has shifted, with nearly 80% of CEOs expecting full-time in-office workers compared to 34% in 2024. Investors could look for opportunities in this asset class as it is still traded at discounted valuations.
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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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