HIGHLIGHTS
Performance of equities was mixed this week, as market participants interpreted the FOMC minutes differently. AI momentum remains strong because of the supportive earnings. Yields rebounded due to the strong economic data and hawkish FOMC minutes. US core PCE, eurozone HICP inflation and China PMI will be the focus of next week.
Copper: The price of copper is choppy this week. It dropped significantly after hitting all-time high. Other than the supply constraints, the demand side backed by increasing investment in artificial intelligence and electric vehicles also boosts the bull sentiments.
China: Tension between Taiwan and China was escalating. Meanwhile, the potential of China-US trade war is affecting the market sentiment. Hang Seng Index and Shanghai Composite Index dropped 4.8% and 2% respectively.
G10: Economists expect Bank of Canada and European Central Bank to begin to cut rates in June. They adjusted the forecast that Bank of England will start its rate-cut cycle from June to August. They expect Fed will follow behind, but the divergence will be moderate. Exceptionally, Bank of Japan is expected to hike rates due to its weakness in currency.
MARKETS
16,920.79 | +1.41% | |
S&P 500 | 5,304.72 | +0.03% |
Dow | 39,069.59 | -2.33% |
10-Year | 4.47% | +5bps |
Brent | 82.16 | -2.14% |
DXY | 104.75 | +0.24% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
UBS: Beyond tech, we like to add more exposure to lower-value end of the equities, such as US small caps and the UK market. For tech stocks, we see modest upside and suggest adopting tools like options or structures to mitigate the geopolitical or policy risks.
Standard Chartered: Pullback in equities is behind now and we believe the recent rebound is sustainable. Short-term technical support is strong with strong momentum and low volatility.
Fixed Income
Morgan Stanley: We continue to overweight investment grade corporate credit. The spread between corporate yields and earnings yields to worst suggests that the valuation gap is wide. If the spread is expected to mean revert, earning yields converge with corporate yields, price-to-earnings multiples will drop. Also, corporate credit is likely to benefit from the coming rate cut cycle, so we prefer owning coupons.
UBS: To improve the overall portfolio yields, we recommend adding riskier credits to complement a core holding of quality bonds. Default rates are likely to remain contained given the decent growth in the economy.
Economy
UBS: We believe the Fed will cut rate despite stronger economic data and hawkish minutes. The commentary minutes were recorded earlier than the CPI report last week, which suggested inflation slowdown, we maintain our expectation of 50bps cuts by year-end with Fed’s data-dependent approach.
J.P. Morgan: The base case of Fed is still a decline in inflation and prolonged rate pause. Although the sticky inflation may warrant a hawkish tilt, the downtrend in inflation still justifies the bias of cuts over hikes.
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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