HIGHLIGHTS
Russell2000 outperformed Nasdaq this week, indicating a shift from large caps to small caps. Small caps are benefiting from the easing yields, as 10Y yields dropped. Markets will remain focused on whether this is a tactical correction due to the stretched levels, or it is the beginning of a rotational trend.
Earnings: Q2 earnings season started this week. The expectation is high for this quarter, with consensus of 9% YoY earnings per share (EPS) growth, which is the highest since 2021. Some banks and airlines reported mixed results.
Inflation: US Core Consumer Price Index (CPI) reported lower than consensus, reinforcing a cooldown in inflation. Combined with the modest increase in unemployment and the Fed official's comments, an earlier rate cut is more possible. Market is pricing a 100% chance of rate cut in September meeting.
BoJ: After releasing the positive US inflation data, market speculated that the Bank of Japan (BoJ) intervened in the market to support its currency. USDJPY dropped significantly from 161 to 157. All eyes are on the coming BoJ meeting in July to provide more guidance on the trajectory of rate hike.
MARKETS
18,398.45 | +0.25% | |
S&P 500 | 5,615.35 | +0.87% |
Dow | 40,000.90 | +1.59% |
10-Year | 4.19% | -8bps |
Brent | 85.01 | -2.25% |
DXY | 104.08 | -0.76% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Morgan Stanley: As the consensus view is economic growth slowdown and disinflation, profit margins become more important. Margin gains require good execution skills, investors are recommended to be selective on management teams with strategies around productivity.
Standard Chartered: Equities in the eurozone become more attractive after the sell-off driven by the French election. The risk of major shift in policy is lower, and investors start to focus on the healthy economic outlook and large companies that drive the benchmark indices.
Fixed Income
UBS: Fed is likely to start easing in the coming months. Attractive yields from quality bonds are not likely to last for longer. The current trading range is still a good entry to lock in rate, offering enough buffer against ongoing volatility.
Morgan Stanley: Treasury investors are pricing a Republican win, implying tariffs, tax cuts and immigration restrictions. This will lead to lower growth, wider deficits and higher inflation. Ultimately, long-term rates are higher.
Economy
Barclays: More clarity on rates as the slowing CPI prints made the September and December cuts more likely. We adjust our forecast to quarterly cuts through Q3 2025 starting in September this year.
Morgan Stanley: The Fed wants to cut rates but needs definitive evidence that the inflation has been tackled. Meanwhile, US Treasury needs lower rates and smaller deficits to keep debt sustainable.
J.P. Morgan: Summer travel is a critical economic driver for many countries. Tourism makes up 10% of GDP in Europe and even 25% of GDP in some individual countries.
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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