Markets kicked off the new year with bad news after finishing 2022 with the worst performance since the financial crisis in 2008. Multiple companies are having growth concerns with the drop in demand. Some tech companies are announcing layoffs.
Best Scenario: Americans kept their job while wage growth is slowing down, easing the inflation pressure. Job market kept its strength with the higher-than-consensus nonfarm payroll data (223k actual vs 203k consensus). Markets reacted positively to the job report which showed the cool-down in wages and drops in unemployment. Equity market rallied after the announcement as it aligned with the expectation of cool down in labour market which will lead to lower inflation.
Peak Or Not: Headline inflation data in the EU dropped to 9.21% YoY, below the consensus level. It is mainly driven by lower energy prices. Some market participants are interpreting it as an early indicator of the peak in inflation, while central bankers maintain caution as core CPI data (excluding food and energy) is still elevating.
Borrowing Cap: The US government is only $78 billion away from hitting the borrowing cap. The fight over the House speakership increased the risk of lawmakers failing to tackle the issue in time. The default risk of the US is elevating and the credit rating of the country will potentially be downgraded if the situation continues. However, McCarthy was finally elected after the 14th round of votes on Saturday, while agreeing on a condition that any lawmaker can call for his removal at any time.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Goldman Sachs: US-listed Chinese stocks jumped over 13% on the first two trading days of the year, mainly driven by the reopening news and the reducing threat of delisting issues.
Standard Chartered: Against the recent backdrop, we prefer to allocate more to Asian assets that offer long-term value. Consumer-focused equity sectors such as consumer discretionary and communication services are recommended.
J.P. Morgan: Equities in developed markets and emerging markets dropped 14.0% and 19.7% respectively. As the UK is officially entering recession and the EU is expected to do so this year, there will be further downward pressures in the equity markets. The announcement of BoJ in December also added pressure on the developed markets.
Morgan Stanley: The 10Y treasury real yield surged by almost 280bps last year. Gold usually trades inversely with real yield, but it does not apply in the current environment. Gold demand remains strong due to the geopolitical risk and currency turmoil have encouraged central banks to build their gold reserves, especially in China and Russia.
J.P. Morgan: Bond markets experienced the impact of higher interest rates. Fixed income markets in the US recorded down last year as the Fed held its hawkish policy. Global high yield was underperformed, mainly due to the increase in downgrades and flight to quality.
J.P. Morgan: Last year was a tough year for investors as the positive stock-bond correlation did not provide protection against the macroeconomic environment, namely high inflation, global geopolitical tensions and hawkish central banks policy.
Goldman Sachs: Fed reiterates its stance as data-dependent, claiming that it would make decisions based on the data for each meeting without rushing to conclusions. Although the Fed is happy to see a cool down in inflation, they do not think this year is the right time to reduce the policy rate. Markets are expecting a 25bps hike in February, March and May.
Standard Chartered: We expect recessions in the US and Eurozone and a recovery in China in the first half of 2023. In the second half of the year, we expect a revival due to the easing in central banks policy and reopening in China.
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