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Weekly Market Update (July 07, 2024)


HIGHLIGHTS

US equities hit all-time highs again during this shortened holiday trading week. Trading volumes are low, almost 20% below 20-day average. Nonfarm payroll was slightly above consensus, while unemployment went up 0.1% to 4.1%. Markets are interpreted as soft data overall and increase the expectation of Fed rate cuts.


Japan: Topix and Nikkei, the two major equity indices, hit record highs and rose 2.12% and 3.23% this week. The corporate governance reforms support the rally. Concerns about weak yen remain as USD/JPY is hovering above 160, and there could be potential intervention by Japanese government.


Bitcoin: The price of Bitcoin was down 10% this week. Mt. Gox, the collapsed bitcoin exchange, is returning around $8 billion of bitcoin to its users, creating the selling pressure. In addition, markets are concerned about the potential sales by government and the struggling crypto miners, resulting in the continuous decline of bitcoin prices.


UK: Market participants are keeping an eye on the strategy of the new UK Prime Minister Keir Starmer. He promised to improve the infrastructure and public healthcare in UK. It is likely that he has to increase the tax rate to fund his program, while UK is facing an economic slowdown. The coming government budget should be monitored closely.


Antitrust: A few mega-tech firms are facing antitrust charges for allegedly anti-competitive practices. Regulators are reviewing the dependence of tech firms on leading chip companies like Nvidia.

 
MARKETS

Nasdaq

18,352.76

+3.50%

S&P 500

5,567.19

+1.95%

Dow

39,375.87

+0.66%

10-Year

4.27%

-7bps

Brent

86.97

+0.57%

DXY

104.88

-0.92%

*Data as of market close. 5-day change ending on Friday.

 
VIEW FROM THE STREET

Equity

Standard Chartered: Q2 earnings of US equities is coming next week. The high earnings growth forecast is expected to broaden out to non-tech sectors. We favor the stocks that have upward earnings revision, strong return on equity and those that could benefit from the potential Fed rate cut.


J.P. Morgan: 36% of S&P500 are concentrated in the top 10 companies in the index. Comparing the internet bubble in 2000 and AI today, the tech sector today is trading at 30x PE vs 70x PE in 2000, which can ease the worry of a bubble. However, we still suggest investors be careful about the high concentration and increasing valuations of the companies.

Fixed Income

Goldman Sachs: 2Y treasury yield dropped 15bps this week after the release of economic data. Markets are pricing in 2 rate cuts by year-end. The likelihood of the first cut in September is currently priced at 80%.


Morgan Stanley: The current tight spreads for both high yield and investment grade are mainly driven by the extremely high quality corporate cash flows and balance sheets, plus the lack of bond issuance versus bond demand. However, the situation may start to change due to the underperformance of small-cap equities, resulting in the drop in confidence of smaller businesses and higher spreads of high yield bonds.

Economy

Morgan Stanley: The political uncertainty, monetary policies and geopolitical instability are high. However, it is not reflected in the expected volatility and risk premiums.


UBS: The labor market has achieved with the increasing number of new jobs, job openings remain high and quits rate remains low. However, unemployment rate is at its highest level in 2 years and Fed is aware of the risk of a slowdown in labor market.

 
KNOWLEDGE TRANSFER

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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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