Weekly Market Update (January 01, 2023)
Updated: Jan 1
After the last trading day of the year, we can conclude this is the worst year for the equity market since 2008. Equities rebounded on a thinner volume later this week after initial jobless claims data that was in line with expectations. S&P500 closed higher, making back the losses early this week, while Nasdaq jumped by a larger magnitude. Yield curve flattened after investors assessed the job market data.
BoJ Minutes: The shock move of BoJ early this month is not intended to change the policy trajectory but to keep the current easing more sustainable by improving the bond market functioning. The revelation has dragged down the performance of the yen.
China Stimulus: More fiscal spending is expected in the coming year, which will boost consumption, stabilize international trade and investment. The fiscal policy will also be more targeted with the aim to increase employment and market confidence.
Chipmaker: Chip production dropped for 4th consecutive month and fell in November by the most since the global financial crisis. The decline in activity is indicating a further cooling of global demand, especially for tech components as the economy is slowing down.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Morgan Stanley: In emerging markets, a bull equity cycle has begun. China, Taiwan and Korea are leading the recovery. The main drivers are the weakening dollars and China is moving toward to reopening. The overall earnings outlook of the region is improved, with the cheap valuation.
HSBC: US equities jumped after investors digested the job data. The retreat in yield has also driven the market sentiment. Asia stock market followed the move of the US market amid concerns over China's reopening situation.
Bank of America: We expect the rates to go down further, with the condition of softening labour market, which is unlikely to happen until the second half of 2023. The treasury curve is expected to dis-invert and become a positive slope gradually.
HSBC: European government’s bond yield dropped, with French and German 10Y yields down 8bps and 6bps respectively. The positive sentiment has reduced the periphery spreads as Italian 10Y yield declined by 11bps.
CitiBank: More investors are seeing the forward-starting steepeners as an attractive strategy, with the expectation of the transition to policy easing. The potential returns for the forward curve to steepen when the cycle turns are promising in 2023.
J.P. Morgan: Although we expect the inflation will cool down next year, it is still elevated relative to history, even after 2 months of lower-than-expectation inflation data. Average hourly earnings increased and remain strong due to the tight labour market.
Goldman Sachs: We expect the inflation rate will stay high while a deep recession can be avoided and a soft-landing is on the way, which is out of consensus. Treasury supply is a key factor for economic forecasts. The new US debt supply is expected to grow if the Fed continues to shed the holdings.
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