HIGHLIGHTS
Equities hit new high again, mainly driven by the strong performance in semiconductors and positive economic data. Volatility of equities is at the year-to-date average level.
Chinese Stimulus: China announced its largest stimulus package since the pandemic, including lowering key interest rates by 20bps, required reserve ratio by 50bps and mortgage rate by 50bps. The officials also pledged $110 billion to support the stock markets. Hang Seng index jumped 13% this week.
Next Cut: After the 50bps rate cut last week, markets are shifting their attention to the November meeting, and are pricing in a 50% likelihood of a 50bps cut. Markets are also pricing 75bps cuts by the end of the year and 100bps cuts in 2025 as they believe the Fed will be aggressive in the near term.
Chip In: US officials approved legislation that would exempt some semiconductor manufacturing projects from federal permitting requirements. This could address the concerns about delayed construction of local chip manufacturers caused by environmental reviews and lawsuits.
MARKETS
18,119.59 | +0.95% | |
S&P 500 | 5,738.17 | +0.62% |
Dow | 42,313.00 | +0.59% |
10-Year | 3.74% | +1bps |
Brent | 72.32 | -3.21% |
DXY | 100.42 | -0.32% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: We expect slowing wage growth and lower interest rates will support the return on equity (ROE) driven by margins and lower borrowing costs. Spreads between the highest and lowest ROE stocks have expanded due to the use of financial leverage, and investors are paying a premium for quality stocks nowadays.
UBS: Within the Chinese equities, we suggest adding exposure to Chinese internet leaders while maintaining some value stocks exposure. We expect the rate cuts and capital market support would favor state-owned enterprises concentrated in high dividend sectors, including telecoms, energy, financials and utilities.
Fixed Income
Morgan Stanley: Credit spreads are solid and have remained tight recently, including CCC-rated bonds which are the most sensitive ones. The spread between CCC and B have dropped at the lowest level in the previous 2 years, indicating the recession risk is limited.
UBS: For Chinese government bond (CGB), we expect the yield to drop because of rate cut, while the drop would be limited due to increase in supply. Any outsized decline in CGB yields could be a sell opportunity, and could switch to other Asian local currency bonds which can offer more yield pick up relative to CGB.
Economy
J.P. Morgan: Markets are worried that the 50bps cut may signal hidden economic weakness. However, Fed officials emphasized that it is a recalibration move and reassured that the economy is strong and they would like to keep it that way.
Morgan Stanley: Instead of layoffs, the impact of monetary tightening on the labor market is absorbed by fewer openings. While the equity markets priced a soft landing scenario, we will find out whether it could be achieved without an uptick in unemployment.
KNOWLEDGE TRANSFER
GLP-1
Here's all you need to know about the Game-Changing Obesity Drugs.
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.
留言