HIGHLIGHTS
All eyes are on the US job market this week. The unemployment data increased the likelihood of the Goldilocks outcomes. It is a relief for the markets as they were worried that the aggregate demand would be too hot to justify the rate cuts.
Gold: Gold hit a record high this week. Technical factors drove part of the recent rally as the price crossed multiple resistance levels. A near-term pullback is possible while there are several factors supporting the long-term uptrend, including the favorable rate cut trajectory, buying force from central banks and the increasing geopolitical risk.
Japan: Markets are expecting Japan to move away from the negative interest rate policy in April. The pace of the rate hike is more of a concern than the timing of the rate hike. It is expected that the hiking cycle will be gradual, especially when the economic outlook is uncertain.
US Election: Trump extended his lead in the Republican nominating contest, setting up a rematch with Biden. While there could be important implications of the US election to investors, it is not straightforward to choose investment and predict market outcomes based on election results.
MARKETS
16,085.11 | -1.17% | |
S&P 500 | 5,123.69 | -0.26% |
Dow | 38,722.69 | -0.93% |
10-Year | 4.09% | -9bps |
Brent | 82.08 | -1.76% |
DXY | 102.74 | -1.08% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: S&P500 stock correlation is dropping, reflecting a micro-driven stock market. Recently, S&P500 returns are mainly driven by micro factors instead of macro factors like sector and market beta. Stock picking becomes more important.
Morgan Stanley: Usually the cost of debt is lower than the cost of equity, but this is not the case in the current market. The spread between equity and debt is inverted, making share repurchasing less accretive.
Fixed Income
Goldman Sachs: Although the delayed easing cycle has little impact on spreads, it has slowed down the pace of dispersion in the high-yield bonds. We remain overweight on CCCs grade bonds, as we expect the excess spread will narrow down and push the dispersion lower.
Standard Chartered: US treasury yield dropped this week, mainly driven by the weak economic activity data. It could go down further if the economic data coming next week is disappointing. Inflation, retail sales and producer price index are the main highlights to keep an eye on.
Economy
UBS: Investors are suggested to not overreact to the implications of the election outcome. Although regulatory and fiscal policy can affect specific asset classes in the short-term, we believe the longer-term portfolio management decisions should be apolitical.
Standard Chartered: Whether the US economy can achieve the soft landing would affect the election and the impact on markets. Historically, presidents are usually re-elected if a recession is avoided, meaning Biden has a higher chance of winning if there is a soft landing.
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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