S&P500 outperformed Nasaq this week, mainly driven by the disappointment in Q2 earnings. Markets expect the Fed and ECB hikes next week will be the last one, while it is likely that they will leave the door open for more.
Central Banks: 3 major central banks - Fed, ECB and BoJ are meeting next week. As the inflation in the US is cooling down, markets are expecting the hike next week would be the last one this year. On the other hand, the inflation in EU remains high. Markets expect a 25bps hike next week and another one in September. BoJ should adjust its yield curve control (YCC) policy due to the uncertain economic data, while markets expect it will stand pat.
Weak Growth: Q2 GDP in China came in surprisingly low (6.3% actual vs 7.1% expected). It is mainly driven by the weaker-than-expected rebound from reopening. Retail sales are weak and unemployment among youth remains high, and is expected to grow even higher next month due to graduation season.
Wheat Supply Shock: Russia has suspended its grain deal participation, which may slow down disinflation. Wheat prices spiked 13% earlier this week because of the news. World market supplies are likely to be affected negatively.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
UBS: In the near term, investors can keep an eye on the industrial sector. We believe it could benefit from government incentives including energy transition, and higher defense spending. The long years of underinvestment in mining, oil and gas may lead to an increase in investment.
Standard Chartered: US tech and India equities are overheating. It would be a good time to rebalance the allocation, including locking in the recent gains of the market rallies of these two leaders in recent months.
Blackrock: We favor emerging market (EM) debt rather than developed market (DM) debt. The peak in DM rate will support EM currencies, which bolsters EM local debt. Thus, the capital inflows and strong currencies are favorable to the returns in EM local currency bonds.
Standard Chartered: We suggest investors allocate more capital to DM government bonds and Asia USD bonds as their risk-to-reward ratio is attractive, driven by the expectation of DM policy rates are reaching their peak.
Morgan Stanley: Profit margins are likely to drop due to the decline in inflation. The spread between prices (CPI) and input costs (PPI) is wide, and they are likely to mean-revert to zero as such dynamics rarely hold historically.
HSBC: China's economy is experiencing a balance sheet recession. It means that the private sector has to pay down debt instead of spending and investing due to the high level of debt. Thus, economic growth is affected.
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