US stocks dropped with higher volatility this week, mainly driven by the hawkish commentary of the Fed meeting. 10Y treasury yields jumped above 4.5% - the first time since 2007. The Fed is signaling only 2 cuts in 2024, down from 4 cuts previously.
Fed: Federal Reserve keeps its target fed fund rate unchanged. Majority of the members expect one more hike this year. They also expect a later start and a higher bar of rate cuts in the coming year. Officials mentioned that the soft-landing is not the baseline but a possible outcome.
Housing Market: As the 10Y treasury yield is at 22 year-high, the mortgage rate is correlated. The 30Y mortgage rate was above 7% this week, weighing on the housing market.
Oil: Oil prices are directionless this week. On one hand, as the dollar is more attractive because of the higher yields, the prices of commodities like oil dropped. On the other hand, there is a temporary ban on gasoline and diesel export in Russia, which reduce the supply and push the price back up.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Goldman Sachs: Historically, the return of short vs long duration stocks follows the change in real yields. Because of the growth effects and discount rate, short-duration stocks outperformed long-duration stocks amid the higher bond yields.
Blakrock: We downgrade China equities from overweight to neutral as the property sector remains a drag even with signs of stabilizing growth.
Morgan Stanley: If the interest rate is going to stay higher for longer, we predict that the corporate debt costs will jump rapidly. There will be more refinancings over the next two years.
Standard Chartered: We upgrade emerging market local currency bonds from neutral to overweight. The central banks in emerging markets have more room to react to slow growth, and it would be favorable to the bond prices.
J.P. Morgan: Energy is the major contributor to the increase of August headline CPI, accounting for more than half of the increase.
UBS: The economic condition in the US is better than expected. GDP came in stronger than the Fed’s forecast, mainly driven by the unexpectedly high consumer spending. It is certain that the full effects of tightening have yet to be felt.
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