US equity market surged this week due to the short covering of tech names. Investors locked in on forward guidance for the major stocks. Nasdaq was up around 11% YTD, which is its best first month in more than two decades. More mega-tech will report their earnings next week, including Apple, Amazon and Meta. All eyes are on the Fed interest rate decision on 1 Feb with the expectation of 25bps.
BoE: The concerns of growth are starting to fade in the US and Europe. However, UK remains an outlier as the market is still expecting a recession in the UK this year. Economic data came out weaker than expected, including retail sales, consumer confidence, and PMI. In addition, the labor market is also tight in the country, making the soft-landing unlikely to realize. Bank of England (BoE) will be unable to hold rates high for a sustained period.
China Reopen: COVID has passed through around 80% of the population in China, with an increase in vaccine effectiveness. Economists are expecting a 5.5% growth in GDP due to the reopening. It is also expected to benefit ASEAN countries because of the Chinese tourists and increase in trade.
Energy: The energy market is volatile this week as market participants weighed in on economic data and demand for reopening. Both WTI and Brent dropped this week. Natural gas was down 8.5% this week due to the low demand for a warmer winter.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Morgan Stanley: Earnings season delivered mixed signals. We are forecasting a profit recession, which is materializing. The bear market is not going to end unless there is an upward revision in the forecast. Investors are suggested to not be obsessed with Fed. Instead, look at the fundamentals. Also, look for signs of a trough from the earnings revision ratio and ISM data.
Standard Chartered: Equity could continue to rally after the consolidation in the near term. Market needs confirmation of a soft-landing in the US and Europe. Investors are recommended to refrain from chasing the rallies due to the crowded positioning. Watch for signs of the rates cut before adding risk assets to the portfolio, which we expect the Fed to cut rates only in the second half of the year.
Morgan Stanley: High Yield credit spreads are resilient during the post-COVID cycle. Investment Grade and High Yield credit spreads are performing well amid the backdrop of recession warnings and inverted yield curves in almost every section. High Yield market may be overly complacent about recession risk given the strong balance sheet and better sector mix compared to the past.
Goldman Sachs: The quarterly financing estimates of the US treasury will be released at the end of January. The report will provide the federal cash balance and help estimate the issuance of treasury bills. As it is uncertain about the situation of the debt-ceiling standoff, the report is important to the investors.
Morgan Stanley: It is noteworthy that financial markets and the economy operate on different dimensions. Economic bad news such as increasing unemployment, slowing growth and weak housing are treated as good news from the markets as it may bring to the end of the stimulus, even though it has negative implications for the households.
Goldman Sachs: Inflation continues to slow. The core Personal Consumption Expenditure (PCE) index is down from 4.7% to 4.4% YoY. Q4 GDP is stronger than expectation, mainly driven by inventories. The consumption and investment growth is slower than expected, which may potentially weigh on the GDP in Q1. Fed is expected to slow its pace to a 25 bps hike, reaffirmed by the dropping inflation, tightening labor market and constructive growth.
J.P. Morgan: Recent economic data is indicating a weakening economy as consumers were more reserved in their spending during the holiday season. Regional Fed surveys, manufacturing PMIs and industrial production are all showing a decline in momentum in December. However, the labor markets are still tight and the real income is expected to increase in the coming months, it is unclear that the recession is happening just yet.
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