HIGHLIGHTS
US equities were flat this week as markets are still weighing the potential implications of the escalating conflicts in the Middle East. The 10Y treasury yield jumped to near 4%.
Job Data: Nonfarm payroll exceeded expectations (254k actual vs 150k expected) while the unemployment rate is aligned with expectations. The strong job market implied that a cut larger than 25bps is less likely in the coming November meeting. 2Y treasury reacted and jumped to about 3.85%.
Oil: Oil prices increased this week as markets expect a counterattack on Iran. US officials are discussing the possibility of strikes on Iran’s oil facilities, which economists believe could remove 1.5 million barrels daily from the market.
Japan: The new prime minister of Japan mentioned that it is not the right time to raise rates. Yen dropped afterward as the expectation of a continued rate hike was pushed back. USD/JPY were up around 4.7% this week.
MARKETS
18,137.85 | +0.10% | |
S&P 500 | 5,751.07 | +0.22% |
Dow | 42,352.75 | +0.09% |
10-Year | 3.98% | +24bps |
Brent | 78.09 | +7.98% |
DXY | 102.49 | +2.06% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: In the auto industry, EU voted to implement a 45% tariff on Chinese electric vehicles. It would be effective at the end of October, and last 5 years. It demonstrated a pushback to China as a trade partner.
UBS: Volatility went up previously, which the VIX (Volatility Index) jumped to over 20 and recorded a 30% spike in 5 days. It implies choppy stock conditions ahead, especially when the US election is entering the final stages.
Fixed Income
Morgan Stanley: US treasuries have been repriced radically due to the aggressive anticipation of rate cuts and soft landing. The 30Y rapid reversal raised concerns about neutral rate in long term, which the higher-for-longer regime implied that the equity multiple may begin to normalize.
J.P. Morgan: Yield curve returned to normal after 26 months of inversion. Historically, the un-inversion signaled an impending downturn of economy. However, we believe the risk of a recession is still low as the resilient in consumer spending should support the economic growth in the coming year.
Economy
Barclays: The strong job data confirm a solid US economy, while the data in Europe and China remain soft. This implies a policy convergence between Fed and ECB, and a need for China stimulus.
Morgan Stanley: As most of the income is concentrated in the highest income group, they also contributed to consumption significantly. Fed policy stimulus may not be very effective for this group of people as they are also benefiting from the home price appreciation and higher interest rates on fixed income and cash. The cut in rate may not stimulate demand and consumption as they lose income from a lower rate.
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DISCLOSURE
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