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Weekly Market Update (June 02, 2024)

Updated: Jun 2


HIGHLIGHTS

US equities ended with a spectacular performance in May. Nasdaq hit all-time high again this week. However, it’s noteworthy that market breadth is low as Nvidia is carrying the index while almost 70% of the remaining constituents are trading lower.


Treasury: The demand for US treasury auction is weak, pushing yields up early this week. Yields pulled back after PCE came in line with the expectations. Markets are not expecting a full rate cut until December. Japan: Japanese government spent 9.8 trillion yen to intervene in the currency market in the previous 30 days. It kept the USD/JPY range bounded and the volatility low. Its effort is effective when looking at the price chart as the result.


Cuts: Although the easing path of the Fed has been delayed, central banks in other G10 countries are likely to cut in the coming week. Markets are pricing a 90% likelihood of 25bps cuts from European Central bank and a 55% likelihood of 25bps cuts from Bank of Canada.

 
MARKETS

Nasdaq

16,735.02

-1.10%

S&P 500

5,277.51

-0.51%

Dow

38,686.32

-0.98%

10-Year

4.51%

+4bps

Brent

81.58

-0.71%

DXY

104.62

-0.12%

*Data as of market close. 5-day change ending on Friday.

 
VIEW FROM THE STREET

Equity

Goldman Sachs: Markets sentiments are mixed. Macro data indicating the risk-on assets are favorable, such as the in-line inflation and GDP data. On the other hand, micro data, especially the stories in the tech sector, are negative and support the opposite side of sentiment.


Morgan Stanley: With the uncertainties around macro data, policy responses and the presidential election, we suggest balancing the portfolio skews with stock picking across various sectors, preferably quality stocks with strong cash flow and the ability to achieve their earnings. Cheap hedges such as VIX calls and S&P500 puts with low strikes are recommended for insurance purposes.

Fixed Income

Morgan Stanley: US treasury term premium has been negative in the last 7 years. Term premium is the excess return of holding a longer duration bond instead of rolling a series of short bonds. Negative term premiums suggest that investors are not compensated for taking more risks on holding longer-dated bonds. Although the relative value of bonds, especially investment grade, is attractive compared to other assets, bonds are likely to be richly priced in absolute terms.


UBS: We believe the US treasury yields will end lower at the year-end as economic growth is slower and inflation is lower. The weakening housing markets and slower growth in rental indicate that shelter inflation growth will continue to drop.

Economy

UBS: PCE data released and met expectations. Although it alone is not enough for the Fed to cut the rate, the data supports our forecast of a soft landing scenario. We expect the Fed to start cutting later this year, likely in September.


Standard Chartered: Economic data in May were strong, recovering from a weak month in April. Manufacturing activities indicators performed well in the US, Europe, the UK and Japan. However, the manufacturing new orders are dropping and service sector employment is contracting, the manufacturing PMI and job data will provide more guidance on the strength of the economy.

 
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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