Nasdaq rose for 5 consecutive days last week. The recent job reports provided strong support to the stock indices. Energy shares fell sharply on Tuesday after Independence Day as domestic oil prices fell back below USD 100 per barrel for the first time in nearly two months. US stocks also fell after choppy futures trading on the same day, as the worries about slow growth overshadowed the optimism about the possible tariffs roll-back on Chinese products. Both energy and stock rallied later in the week.
Non-farm Payroll: The stronger-than-expected jobs report lifted the yield on the benchmark 10-year U.S. Treasury note to roughly 3.10% amid a broad rise in rates. The data reflected that the labor market stays strong, meaning that the Fed can proceed with its current trajectory of rate hikes plan for now.
US-China Tariff: Biden is looking to lift the Trump-Era tariffs with China in order to stabilize global supply chains and strengthen their coordination. The Biden administration claims that the duties have significantly raised the costs for US local consumers and businesses.
Oil Price Plunge: Oil plunged below $100 a barrel earlier last week, which was driven by the fear of a recession that will hurt demand. Investors have been pricing in the consequences of a slowdown despite the war in Ukraine still dragging on. Commodities like oil are costing more for the holders of other currencies due to the strong US dollar.
China: President Xi vowed to maintain the GDP target of 5.5%. A new round of stimulus is going to roll out in the second half of the year. 1.5 trillion yuan of special bonds are allowed for local government to sell for several purposes, mainly funding the infrastructure.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
J.P. Morgan: US large and small caps stocks dropped 20% and 23.4% respectively in the first 6 months. Emerging markets declined by 17.5% while developed markets were down 19.3%. The Russia-Ukraine conflict imposed more impact on developed markets, especially on Eurozone.
UBS: Investors are suggested to focus on defensives and quality in their equity portfolios. Quality income stocks will be helpful amid the lower corporate profit expectation. More allocations to the healthcare sector are recommended.
Morgan Stanley: The implied pace of rate hikes and cuts shows that the Fed will shift from tightening to easing in the 1Q of 2023. The futures have priced in 50 bps of cuts by next summer while the stock market has not priced in the outcome yet.
J.P. Morgan: Global high yield bonds declined 16.9% in the first half of the year due to the weakened corporate credit quality, which the cost is rising and demand is potentially contracting.
Morgan Stanley: Last month, Fed revealed that the fed fund rate may go beyond 2.5% to 3.4% by the end of this year, and 3.8% by mid of 2023. The futures price of Fed funds does not reflect fully, showing the market is skeptical about whether Fed can really go this far.
UBS: The 2nd half of this year will remain volatile, and trade based on the sentiments of the market's view on inflation and economic growth. More comments and data are indicating a higher probability of a further decline in the economy.
HSBC: Oil prices decline as the fear of recession outweighed the concerns over the supply chain issues and market tightness.
Goldman Sachs: The sell-off of oil last week was overshot and short-lived. The key bullish view is the current oil deficit is not solved yet. Although the risk of recession is going higher, the oil demand is also rising this year and outperforming GDP growth significantly.
HSBC: Semiconductor fell due to the US-China relations news. Chinese chip-makers are supported by the increase in state investment and policy.
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