Weekly Market Update (March 05, 2023)
S&P500 rallied this week as more investors are speculating that the peak levels of interest rates are already priced in, and the impact of the rate hikes will be delayed. 10Y yield is hovering around 3.96%, while the dollar dropped. All eyes are on non-farm payroll (NFP) in the coming week, which could indicate whether the economy could take on more hikes.
Oil: UAE announced that they do not have any plan to exit OPEC. The announcement also showed their dedication to supporting oil prices. More economic data supporting the rebound in oil consumption is taking hold, leading to a surge in oil prices this week.
Service Sectors: US service sectors are stronger than expected, with an increase in hiring. The ISM report also indicates that the demand is healthy amid the resilient labor market. The deliveries are faster, improving the capacity of suppliers and alleviating supply chain problems.
Blackstone Default: Blackstone has defaulted on a Nordic commercial mortgage-backed security (CMBS), which is backed by a portfolio of offices and stores. The primary reason is the decline in property value driven by the rising interest rates. Buyers tend to wait and see how far the interest rate will go instead of buying property now, resulting in a downward pressure on demand.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Goldman Sachs: Chinese internet stocks price increased by 8.8% this week, resulting in a double-digit year-to-date performance. It is mainly driven by the positive economic data showcasing that the recovery pace is faster and stronger than expected.
Morgan Stanley: Equity risk premium (ERP) is a comparison of stock yield (earnings-to-price ratio) and the 10Y treasury yield. Stocks have been trading at around 300-350bps ERP in the past 20 years while trading at 167bps currently. Typically, ERP is inversely correlated to fundamentals. Bullish investors should be careful as the Fed hike cycle may still be far from over given the policy is uncertain, inflation is still high and labor market is still strong.
Morgan Stanley: High-yield bonds are resilient as investors believe that corporate balance sheets are strong and they expect a soft landing. High-yield spread deviated from the typical inverse correlation with the manufacturing PMI, which dropped for the last few months.
Goldman Sachs: Investors are continuing to park in the safe-haven assets - US treasury. The yield was pushed higher this week due to the ongoing labor market strength and the rebound of inflation.
Goldman Sachs: Core inflation in the eurozone beat expectations and jumped to a new high (5.6% actual vs 5.3% forecast). Market has revised the expectation of a 35bps rate hike to 50bps in the ECB meeting in May.
Standard Chartered Bank: Consumers in the US still have USD1.4 trillion of excess savings and consumers in China are expected to spend their savings that are built during the pandemic period. It is likely that the global growth that is driven by consumers will last longer.
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