Equities performed well this week, while VIX remained below 15. The Fed paused the hike as expected after hiking 10 times since 2022. Investors are confident with the overall picture, including inflation, job market, regional banks system and debt ceiling deal.
Disinflation: Short-term inflation expectations in the US dropped from 4.2% to 3.3%. Headline CPI increased by 4% YoY, which hit the lowest point in two years. The Fed signaled that it will hike rates by 50bps by year-end.
YCC: Bank of Japan decided to maintain yield curve control (YCC) as inflation is expected to slow in the coming months. Producer Price Index (PPI) was down from 5.9% to 5.1%.
PBoC Surprise: People's Bank of China (PBoC) cut its benchmark 7-day reverse purchase rate by 10bps. Economic data is weak, including retail sales and industrial production. Unemployment hit its record high for the age group 16-24. China is expected to implement more stimulus packages due to deflation.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Bank of America: Dollar plays an important role in Emerging Market (EM) equity performance. The weakness in dollar could ease the financial conditions and be a tailwind to EM equities.
Standard Chartered: The interest rate-sensitive tech stocks have been rallying. However, the hawkish message from the Fed may moderate the tailwind for this rally as tightening would push up bond yields, which is a headwind for the valuation of tech stocks.
Goldman Sachs: 10Y bonds are preferred, supported by the relative valuations. On the other hand, the 30Y bonds could linger as the issuance in the primary market is low. The current pattern is likely to persist until the supply of long-end paper (i.e. 30Y) returns to the normal level.
Standard Chartered: The more stimulus packages in China are putting downward pressures on bond yield in the near term. The declining bond yield means a weaker CNH as the rate differential is less supportive.
UBS: We believe a US recession could be avoided. Earnings and growth are proven to be resilient. Confidence in the economy will increase even more if the real income growth keeps increasing, inventories continue to restock and the job market remains robust.
J.P. Morgan: Rate cuts are expected within the next year, and it would probably improve the backdrop across different asset classes for market participants.
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