HIGHLIGHTS
Markets expect the first potential rate cut in next week's Fed meeting. Both S&P500 and Nasdaq went up significantly, led by technology and semiconductor sectors. 10Y treasury yield dropped.
First Rate Cut: Data continues to demonstrate a controlled inflation and cooling labour market. A former New York Fed President mentioned that there could be two full cuts. Markets are pricing 52% odds of 50bps cut in the coming meeting, up from 18% early in the week.
Central Bankers: European Central Bank cut rates by 25bps to 3.5% this week. It is the second time this year. Markets are expecting further cuts and is pricing 36bps in cuts by the end of the year. Bank of England (BoE) and Bank of Japan (BoJ) are expected to keep their rate unchanged in the coming meeting. There could be a potential BoE rate cut and BoJ rate hike in November and January respectively.
Oil: The drop in oil prices is mainly driven by the weak demand following the weak economic data. On the supply side, oil supply from Libya will return to the market soon as domestic political rivals near a truce.
MARKETS
17,683.98 | +5.95% | |
S&P 500 | 5,626.02 | +4.02% |
Dow | 41,393.78 | +2.60% |
10-Year | 3.65% | -6bps |
Brent | 72.12 | +0.84% |
DXY | 101.11 | -0.08% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: Although the economic outlook and growth are downgraded, the prospect of Fed easing has boosted the market sentiment. However, we believe the growth trajectory is a more important driver than the pace of rate cuts.
Standard Chartered: Technology and financial sectors are recommended. We believe the AI structural growth is still in its early stage, and supported by the increasing demand for AI related software and hardware, plus the strong guidance of Nvidia. Financial sector is favorable due to the steepening yield curve, and rebound in non-interest income and loan volumes.
Fixed Income
Goldman Sachs: Resilient economic outlook will lead to higher bond yields. We expect the nominal 10Y treasury yield can move higher and stay around 4% as the cutting cycle of Fed progresses.
UBS: Investors scaled back the likelihood of a 50bps cut, reflected by the higher 2Y treasury yield curve, which is most sensitive to Fed’s changes.
Economy
UBS: Overall economic data are good enough to allow Fed to cut rate in the next meeting, while not enough for an aggressive cut. Retail sales and industrial production data will come before the Fed’s meeting, which could potentially affect Fed’s decision. 50bps cut is possible if the data is too weak.
Blackrock: The recession fears of US have been driving the volatility in the market. We could see higher volatility ahead of the US presidential election. US corporate earnings have proved resilient.
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DISCLOSURE
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