Markets are quiet this week, which can be attributed to the holiday-shortened week and the markets are waiting for the Q2 earnings reports next week. The market price is implying a 90% odd of a 25bps hike at the coming meeting this month. They also expect fewer rate cuts next year.
Job Market: US job data came in strong, with the declining unemployment and higher-than-expected jobs in private companies (497k actual vs 272k expected). While the nonfarm payroll figure is slightly lower than expected (209k actual vs 230k expected), it was offset by the strength of other indicators. The strength in the job market supports the Fed to not cut rates soon.
Student Loan: Although the Supreme Court seems more likely to block the implementation of the student loan forgiveness plan, there is a chance that the plan could still stand. The impact on consumption will be obvious in the near term if the student loan payments restart, while the impact will decline over time in the medium to long term.
PBoC: RMB remains under pressure due to the interest rate divergence in China and the US, which would be a headwind for the investment inflow to China. Markets are expecting more stimulus policies from the People’s Bank of China (PBoC).
Earnings Season: The 2nd quarter earnings will start to release next week. Markets are expecting the earnings per share (EPS) to drop 9% YoY due to the compression in margin and sluggish growth in sales.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
J.P. Morgan: US large cap led the way in the first half of the year, increasing 15.5%. Over 95% of the S&P500 gain is driven by the top ten companies. Small caps are lagging due to bad earnings and cyclical factors.
Standard Chartered: The risk of consolidation is higher due to the hawkish monetary policies and weaker economic data. Equity markets in US and Europe are losing their momentum. We suggest rotating more assets into Asian equities as the economic data is stronger and policies are more supportive.
UBS: 2Y treasury yield hit the highest level since 2008, mainly driven by the strength in the job market.
J.P. Morgan: Global high yield outperformed in 1H23 compared to other fixed-income assets. The higher-than-expected earnings have boosted their credit quality.
Goldman Sachs: The state and local (S&L) spending growth remains low. Although the balance sheets are strong, they are more likely to be reserved as a fiscal cushion for the potential economic downturn, especially when the recession odds are higher in the coming months.
UBS: There is no consistent downward trend in inflation. The Personal consumption expenditure (PCE) index, which excludes energy and food prices, was hovering around 4.6-4.7% this year. Fed mentioned that there is a long way to go for reaching their inflation target.
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