Equities rebounded this week. All eyes are on the path of the Fed’s easing policy. Earning season has just kicked off this Friday, started with a few bank names. Markets remain concerned about the global geopolitical risks.
Bitcoin: Listing and trading spot Bitcoin ETF has finally been approved by the US Securities and Exchange Commission (SEC), boosting the cryptocurrency prices this week. Compared to the same period last year, Bitcoin’s price is about 3 times higher.
Inflation: The month-over-month increase in consumer price index (CPI) is slightly higher than expected (0.3% actual vs 0.2% expected), but it is unlikely to derail the Fed’s easing path. Inflation forecast dropped to the lowest point in 3 years. Markets are pricing 83% odd of rate cut in March, while Fed’s officials commented that it is probably too soon as they would need more evidence.
China: The officials from People's Bank of China signaled the possibility of monetary easing because of the disinflation in China. As the debt-disinflation spiral is becoming more visible, and the market sentiment is pessimistic, easing would be a way to alleviate the current situation.
*Data as of market close. 5-day change ending on Friday.
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Goldman Sachs: Small-caps are likely to outperform large-caps due to the low valuations and healthy economy. Companies with less pricing power will perform better when EBIT margins improve. In terms of sector, Consumer Staples are favorable as 75% of the time they outpaced S&P500 after the first cut.
Standard Chartered: Equities in US are facing technical hurdles as S&P500 is close to its all-time high. The high earnings consensus in Q4 2023 and strong 2024 guidance have the potential to take the index to the new record high.
UBS: We expect four 25bps rate cuts starting from May. Investors are suggested to lock in yields and limit cash balances. Although the volatility in yields will be high in the near term, quality bonds are still favorable.
Morgan Stanley: Gains from further spread tightening could be limited because of the softer inflation and slower economic growth. The scenario of soft-landing could support the corporate cash flows and defaults would be lower.
Barclays: We adjusted our inflation forecast down and shifted forward our expectation of the first cut from June to March.
UBS: The current pricing of the March cuts is too optimistic. Wage growth is dropping but it is still too high and is not compatible with the Fed’s inflation target. Overall, inflation, job and economic activity data are all too strong for the Fed to cut rates.
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