HIGHLIGHTS
After a few low-volume trading days early this week, all major US equity indices hit new highs as CPI was in line with expectations. Market is pricing an 85% chance of rate cut in September.
China Property: A basket of China real estate companies jumped almost 20% this week, mainly driven by the stimulus package. The new policy is likely to encourage home purchases and shore up excess inventory.
Tariffs: Biden’s administration announced tariffs on US imports from China, including solar cells, electric vehicles, lithium batteries. It is expected to have limited impact on China in the near term. At the same time, Trump suggested 60% tariffs on all US imports from China, and the expected impact is around 2% of China’s GDP growth.
Copper: The price of copper futures went up around 4% this week due to the short squeeze in the front-end copper futures. Demand for copper is increasing as markets are anticipating the increase of investments in data centers, electric vehicles and updating grid.
Meme Stocks: Retail community reengaged with a few meme stocks this week. Around 45% total volume of the market was concentrated in stocks with prices lower than $1, while the year-to-date average is 12%.
MARKETS
16,685.97 | +2.11% | |
S&P 500 | 5,303.27 | +1.54% |
Dow | 40,003.59 | +1.24% |
10-Year | 4.42% | -8bps |
Brent | 83.96 | +1.49% |
DXY | 104.5 | -0.77% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
UBS: The macro backdrop is favorable to equities. Although the valuations are high, AI-related firms should continue to deliver strong earnings in the year ahead. We have higher conviction in our 9% earnings growth for S&P500 this year because of the healthy and broadening profit growth in Q1.
Wellington Management: We recommend value stocks as we believe the structurally higher inflation and real rates will support them. The equity rally is broadening, including small caps and value-oriented sectors. The main risk in our view will be the optimism of AI is matched by the enormous addressable market and delivers exponential earnings growth. However, we see potential headwinds for that as policymakers tend to create standards and regulations to ensure the safe use of these new tools, potentially reducing the impact of AI on both economic growth and productivity.
Fixed Income
Goldman Sachs: Bond yields in Japan went up this week due to the hawkish policy shift. Bank of Japan will reduce its Japanese government bond purchases. Markets expect the terminal rate will increase from 1% to 1.5% in medium term.
Morgan Stanley: Curves are likely to steepen when rate cuts start. However, it is unclear that if the consumer will see good news as good news or if the rate cuts will come too late. Consumer moods are worsening because of the decline in excess savings. If yields steepen and consumer confidence index continues to drop, it indicates recession.
Economy
Morgan Stanley: Labor market is cooling down, as indicated by the Job Openings and Labor Turnover Survey (JOLTS), nonfarm payroll and initial jobless claims. It reinforced the Fed’s easing bias.
J.P. Morgan: Inflation is dropping despite the tight labor market. Dollar is going to stay strong in the near term due to the higher for longer rate environment, it will drop once the Fed starts cutting rates. The dollar-denominated return from overseas assets will be bolstered.
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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