HIGHLIGHTS
S&P500 hit all-time high this week driven by the 50bps rate cut. The 50bps cut implied Fed’s focus on achieving a soft landing. PCE in the US, PMI in Europe and election in Japan are the keys in the coming week as they affect the likelihood of an ECB rate cut and the future of BoJ policy decisions.
Rate Cut: The cut aims to keep labor market stable and maintain the strength of the economy. For the Fed’s dot plot, the median rate cut forecast is 50bps (vs 70bps market pricing) additional cuts this year, 100bps in 2025 and 50bps in 2026. It is expected to arrive at 2.875% in longer term.
BoE: The Bank of England (BoE) kept rates unchanged at 5% as consumer price index was in line with expectations. Markets are expecting 25bps at the coming meetings in November and December.
BoJ: The Bank of Japan (BoJ) also held rates steady due to the wider trade deficit and weaker growth in exports. Holding the rates could potentially boost for further growth for a longer period before the next rate hike. Markets are expecting 25bps hike by year-end to control inflation.
MARKETS
17,948.32 | +1.49% | |
S&P 500 | 5,702.55 | +1.36% |
Dow | 42,063.36 | +1.62% |
10-Year | 3.73% | +8bps |
Brent | 74.72 | +3.61% |
DXY | 100.74 | -0.37% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
UBS: Result of the US election would impact a range of policies. While the polls indicate the two parties are still 50-50, investors should manage their exposure to election-sensitive areas, such as consumer discretionary and renewable energy.
J.P. Morgan: Although tech firms got early boost from AI enthusiasm, other sectors are performing well too. By looking at the previous earnings season, S&P500 ex-Mag 7 is seeing gains, and the outlook is more than just recovery. If the economy sticks the soft landing, it would support many more companies than just the mega tech firms.
Fixed Income
Morgan Stanley: US treasury and credit investors enjoyed the drop in rates and price gains associated with the current cycle turning point. Although it is still too early to take profits in fixed income, market participants should be prepared for the relatively moderate Q4 performance as rates potentially bounce back.
UBS: The Fed’s larger cut and expected further cuts will erode the returns on cash. We recommend investors to shift excess cash into assets such as bonds, including bond ladders, medium duration bonds and investment grade bonds.
Economy
Barclays: There is downward pressure on economic growth in China. We expect to see more reactive easing policies including housing and monetary to break the vicious cycle.
Bank of America: Job market data have disappointed but are unlikely to deteriorate further. The runway for the soft landing may be longer than expected. Strong consumer spending, corporate profits, investments and GDP growth are inconsistent with additional job market deterioration. With the rate cuts, we believe the economy is on track to receive support.
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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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