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Weekly Market Update (May 05, 2024)


HIGHLIGHTS

Treasury yields dropped as the Fed’s comments are dovish this week. Rate expectations shifted from one cut to two cuts by the year-end. Companies that represent 20% of the S&P500 market cap reported earnings this week. Although the earnings results are robust, the S&P500 was flat as market participants are concerned about weaker consumer spending, AI-related investments and forward-looking estimates.


Yen: Japanese yen rebounded after dropping to the 34-year low. Markets believe that was intervention from the Bank of Japan. Japan’s officials declined to comment on intervention, while data shows that they spent almost $60 billion to support the yen this week. The intervention is unlikely to have significant impact on USD/JPY as it is more sensitive to the macroeconomic environment.


Economic Data: US Manufacturing PMI dropped to 49.2%, which a reading below 50% means contraction. The weak data is mainly driven by the scaled back in hiring. Nonfarm payroll also reported lower than expectation (175k actual vs 240k expected). Wage growth came in lower than expected and unemployment increased to 3.9%.


Chinese Stocks: A basket of China Internet names went up significantly last week. Investors are positioning their portfolios for further upside. Market data suggests that hedge fund managers increased their holdings of Chinese equities in the previous months.

 
MARKETS

Nasdaq

16,156.33

+1.43%

S&P 500

5,127.79

+0.55%

Dow

38,675.68

+1.14%

10-Year

4.57%

-10bps

Brent

82.82

-7.46%

DXY

105.08

-0.95%

*Data as of market close. 5-day change ending on Friday.

 
VIEW FROM THE STREET

Equity

Goldman Sachs: Apple’s earnings reported better than expected while iPhone sales dropped 10% due to sluggish Chinese demand. It announced the largest-ever share repurchase plan ($110 billion) which reignited excitement in the market.


Standard Chartered: We start to see rotation of flow from the US to Asia. It is partly driven by the relatively high inflation and valuations in the US. It is likely to have further upside in some of the Asian equity markets in the coming quarter.

Fixed Income

Morgan Stanley: Supportive dynamics such as the decelerating net bond issuance and strengthening corporate cash flow are attracting investors to clip coupons in the 6-9% range. This is considered the best opportunity in this asset class in the past 15 years.


Standard Chartered: We prefer sub-financial bonds over developed market high-yield bonds. Additional Tier-1 bonds (AT1) are one of the sub-financial bonds that we recommend. Nominal yields are attractive, and the risk of extension is manageable due to the new bond issuance in Q1. Underlying fundamentals are strong, as the higher for longer interest rate environment is favorable for the net interest margin of financial institutions.

Economy

Barclays: This is a Goldilocks combination for the financial markets - the Fed downplayed the risk of rate hikes amid a weaker job market. The situation may last until the next inflation data.


J.P. Morgan: There is an increasing concern about the potential stagflation after the released data showed decelerating growth and accelerating inflation. However, the concerns may be exaggerated as the headline figure masked the underlying strength. Data like trade and inventories are volatile, which dragged down the overall headline growth.

 
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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