Weekly Market Update (September 08, 2024)
HIGHLIGHTS
Markets are still guessing whether there will be a 50bps or 25bps rate cut in the coming Fed meeting due to the mixed job data. The chance of a 50bps rate cut is pricing at around 30-50%. 2Y treasury yield dropped to 2-year low. Equities were down, mainly driven by tech and semi stocks.
- Economic Data: Job openings data are weak but initial jobless claims are lower than expected (227k actual vs 230k expected). Before the next Fed meeting in late September, it is believed that Fed will keep an eye on consumer price index (CPI) and producer price index (PPI).
- Election: The next presidential debate will be in the coming week. Markets continue to analyze the implications from the election outcome. Trump’s proposal of corporate tax cut from 21% to 15% will likely to boost S&P500 earnings by 4%, while Harris’s proposal of increasing tax rate to 28% will reduce earnings by 5%.
- Yen: Japanese yen hit the highest level year-to-date, mainly driven by hawkish comments from Bank of Japan’s officials and yield movements in the US. It may have more rooms to tighten as the real wage growth in Japan is higher than expected.
MARKETS
| Nasdaq | 16,690.83 | -5.77% |
| S&P 500 | 5,408.42 | -4.25% |
| Dow | 40,345.41 | -2.93% |
| 10-Year | 3.71% | -20bps |
| Brent | 71.52 | -7.17% |
| DXY | 101.19 | -0.53% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
UBS: AI monetization by mega tech firms appears to be picking up. Q2 results are solid and global tech firms are on track to deliver earnings growth of around 15-20% in the coming one to two years.
Standard Chartered: Improving global diversification is a recommended way to add equity exposure in the near term. Chinese and Indian equities are favorable with the supportive policies.
Fixed Income
Standard Chartered: Bond yields are highly sensitive to the job market data. Data that is in line or higher than expected will likely lead to rise in yields. When the rebound happens, it would be an opportunity to add bond exposure, especially high-quality USD bonds.
Blackrock: Amid the higher rate environment, the income cushion that bonds provide has increased. Quality income in short-term bonds are recommended.
Economy
Goldman Sachs: In China, officials are considering interest rate cuts on mortgages to reduce borrowing costs and stimulate consumer consumption. The reduction would apply to both first and second homes.
Barclays: We remain firmly the Fed is going to have a 25bps rate cut this month. Although the job data provided mixed signals of cooling, the comments from Fed’s officials point to a 25bps cut. The subsequent pace will depend on the totality of data but not just job market data.