S&P and Nasdaq finished up this week. Volumes remain low ahead of Labor Day. Treasury yields dropped as the personal consumption expenditures (PCE) price index was in line with expectations.
Oil Cut: OPEC+ countries are cutting their oil supply to boost prices, mainly due to the signs of weak demand in China. Saudi Arabia is cutting 1 million barrels per day (mbd) to around 5.6 mbd, which is the lowest since March 2021. Prices of WTI and Brent went up significantly this week.
Labor Market: The US employment data in August rolled out this week. 187k jobs are added, with a jump in the unemployment rate to 3.8%, mainly driven by increased labor force participation. The weak data decreased the likelihood of an interest rate hike in the Fed’s coming meeting in September.
China: The Chinese government introduced more supportive policies to stimulate its currency and economy. The People’s Bank of China decreased the foreign exchange deposit requirement from 6% to 4%. In addition, stamp duty in stock trading will be decreased by 50% and the pace of IPOs will be slower in order to stimulate the stock market. Mortgage requirements will be lower and there will be tax breaks for parent and child care and education.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Goldman Sachs: Chinese equities rallied this week, especially the internet sector. It is mainly driven by the expectation of additional fiscal support from the government. US tech stocks rallied as well due to the expectation of lower interest rates.
Standard Chartered: We favor equities in Asian markets for regional diversification, especially Japan and India. Tactically in China, we will be selective to the sectors that are aligned with the policy support, or that have pricing power that are resilient under deflationary pressures.
Morgan Stanley: As one of the largest holders of US treasuries, China’s intervention to defend RMB may be partly contributing to the lack of demand for US treasuries amid new issuance, leading to the decline in treasury price.
UBS: The restrictive monetary policy will likely weigh on the growth in the coming months. Thus, the long-end yields are likely to decrease by the end of the year.
J.P. Morgan: Market participants expected economic activity in US will slow down this year because of the lagged effect of tightening policies. However, the economy is surprisingly resilient. The real non-residential fixed investment increased in 2Q, mainly driven by intellectual property, which is less sensitive to rates. Thus, we believe it would benefit the equity markets.
UBS: PCE increased to 3.3% year-over-year in July, while Fed emphasized that the inflation subcategory “core services ex-shelter” reported a relatively significant rise. As it is still above the 2% inflation target, an extra rate hike is not impossible.
Barclays: Because of the moderate labor market, resilient consumer spending and accelerating PCE, we expect a 25bps rate hike in November meeting.
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