HIGHLIGHTS
Both Nadaq and S&P500 hit new high this week, despite the relatively hawkish rate cut projection from the Fed. The gain in equity indices was mainly driven by the jump in Apple stock price, which increased over 7% after the announcement of its AI strategy. 10Y treasury dropped as inflation met expectations.
Fed: The Fed kept the rate remains unchanged as expected. It revised its “dot pot” - projection of short-term interest rate down from 3 cuts to 1 cut by year-end. Markets are pricing 80% likelihood of first cut in September meeting before the election.
France: French equities dropped significantly as there is increasing fear over a potential far-right election. The threats of looser fiscal policies also pulled down the 10Y yield of French government bonds (OAT). Euro dropped 2% this week, which is a considerable amount for the currency.
Tariff: European government set 38% tariffs on electric vehicles this week, with an aim to protect local car makers. Share prices of a basket of European car makers dropped around 4.5% as markets are expecting retaliation from China.
MARKETS
17,688.88 | +3.24% | |
S&P 500 | 5,431.60 | +1.58% |
Dow | 38,589.16 | -0.54% |
10-Year | 4.21% | -22bps |
Brent | 82.60 | +3.91% |
DXY | 105.52 | +0.56% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
UBS: The boost in AI demand is going to increase energy consumption. A ChatGPT search requires 10 times the energy of a Google search. Energy consumption will also increase when data centers grow. Other than the traditional utility sector, we also recommend renewables companies.
Bank of America: The current tension in US-China relations would potentially affect the global supply chain, world trade volumes, corporate earnings and volatility in the markets. Sectors like defense, cybersecurity are preferable. Inflation-sensitive stocks and commodities are also recommended.
Fixed Income
Standard Chartered: Bank of Japan delayed its plan to reduce bond purchases, holding its interest rates at the 0-0.1% range. Japanese government bond yields dropped as markets were expecting it to reduce bond purchases at this meeting. Yen dropped to a six-week low.
Goldman Sachs: Given June’s nonfarm payroll data, there is an upside risk of rate volatility. For many real money investors, there have been no major activities in recent months. They need to see the start of rate cut to stimulate inflows. This sentiment is echoed by private banking investors, whose investments concentrate on cash-like products.
Economy
UBS: We believe the slower inflation prints should carry greater weight than the dot plot from Fed as the dot plot is data-dependent. Core services excluding shelter fell for the first time since 2021. As the service sector is labor intensive which involves higher wage components, a decline in this metric also indicates a decline in wage growth, reducing the inflation pressure.
Standard Chartered: Although inflation came in cooler for 2 consecutive months, Fed remains cautious and emphasizes that it would need great confidence that inflation remains on the downtrend before it eases policy.
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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