HIGHLIGHTS
S&P500 dropped and ended the month below 6000. Tariff concerns eliminated the post-election gains for tech stocks. The 25% tariffs on Canada and Mexico are reaffirmed to be effective on 4th March.
Ceasefire: Markets expect a ceasefire within this year. It is likely that Ukraine will lose some territory while gaining support from Western security guarantees and reconstruction commitments. Russia may negotiate sanction relief and partial resumption of gas flows to Europe, even if it is unlikely to recover back to the pre-war level.
Eurozone: The economic growth outlook in eurozone was boosted after the German election last week. Markets expect looser fiscal policy and an increase in defense spending. The growing optimism of resolution in Ukraine war is likely to support economic growth and expansion in Europe. Markets are expecting 25bps cut at March’s ECB meeting.
China: Chinese government plans to inject $55 billion into three major state-owned banks to support the economy. The lending capacity of the banks will be increased by the financing from the special sovereign bonds. Plus the broader stimulus package, it would be the first large-scale injection since 2008 financial crisis.
Gold: Gold prices dropped significantly this week, mainly driven by the strength of US dollar. Gold has been performing well this year, with 12% year-to-date the previous week and having almost hit $3000 per troy ounce. Central banks have been a dominant force in the market as they have been major buyers since 2019. They are price-insensitive buyers and would keep buying at record high prices, as they are aiming to hedge the geopolitical risk but not optimize return.
MARKETS
18,847.28 | -3.47% | |
S&P 500 | 5,954.50 | -0.98% |
Dow | 43,840.91 | +0.95% |
10-Year | 4.23% | -19bps |
Brent | 73.03 | -1.08% |
DXY | 107.56 | +0.86% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Morgan Stanley: European equities increased in the previous days and outpaced US, mainly driven by the possibility of Russia-Ukraine ceasefire. There will be increase in defense spending, reconstruction projects and renewed access to Energy from Russia.
UBS: The best risk-reward is in US equities, German equities, AI, power and resources. There could be near-term market volatility such as risks of potential US government shutdown, disappointment in Russia-Ukraine deal or shock in tariff policies. We expect S&P500 to hit 6600 by end of this year.
Fixed Income
Morgan Stanley: Markets are accepting the rate cut cycle is likely to be finished, supported by the spread between 2Y treasury yield and Fed Fund which is essentially 0. However, there are factors that will affect the policy including US debts and deficits, fiscal spending on tax cuts, job markets and inflation.
UBS: Our base case for bonds is the yield falls slightly over the course of the year. If there is a correction, which could potentially be driven by the fear of stagnation and increase in fiscal deficit, the bonds markets are expected to suffer for a while.
Economy
Goldman Sachs: Concerns about US growth amid Trump’s policies are raised due to the decline in personal spending and consumer confidence. 10Y treasury yield dropped, indicating the growing worries. Markets are expecting two 25bps cuts by October.
UBS: The tariffs on China came in earlier than the markets expected, and before China’s annual National People’s Congress meeting. We believe there will be a stronger stimulus package in the coming meeting. Markets should pay attention to the USDCNY and the capital market
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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