Fed hiked rates by 25bps as expected. The markets are pricing in a 30% odd of another 25bps hike by the year-end. Both US treasury yield and equity performance are positive. 10Y yield increased to around 4%. Nasdaq and S&P500 increased by 2% and 1% respectively.
Earnings: Almost half of the firms in the S&P500 have reported their earnings. The earnings per share (EPS) growth dropped less than expected (-7% actual vs -9% expected). More than half of the reported earnings beat consensus, while not reflected in prices. On the day after the stocks that posted positive surprises underperformed compared to the previous years.
YCC: Bank of Japan finally adjusted its monetary policy. It loosened its yield curve control (YCC) due to the higher inflation forecasts. It hiked the fixed-rate purchase operations from 0.5% to 1%. Yen dropped by 1% after the announcement.
China Growth: Investors are optimistic about the economic growth in China. CSI300 was up around 4.5% this week due to the expectation of additional stimulus. Policymakers in China mentioned that it is possible to accelerate the issuance of government bonds, which could support growth.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
HSBC: A pause in Fed hike is favorable to the equity markets. The current bull market should continue. However, consolidation and sector rotation is possible in the future as valuations have increased.
Blackrock: Developed market equities are underweighted as the potential consequences of rate hikes are not reflected yet, including economic damage and financial cracks.
Goldman Sachs: It is possible for an additional Fed rate hike, but not likely given the current inflation outlook. The September pricing of ECB is too low given the continuous core inflation pressures.
Standard Chartered: Government bond yields of developed markets are likely to drop due to the expectation of slow growth, implying an opportunity for capital gains. Still, they are offering attractive yields.
Morgan Stanley: Markets do not expect a recession anymore with the gains driven by several expansions. Market participants are shifting their wagers from a soft-landing scenario to economic reacceleration.
Citi: The recent market optimism is mainly driven by the decline in inflation. It is boosting consumer confidence and real incomes. Also, disinflation is likely to be global.
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