HIGHLIGHTS
Equities remain strong this week, mainly driven by the favorable revenue report in the AI and chip technology sector. After the US election, US equity inflows have reached the highest on record, and USD continued to strengthen over the same period.
ECB: The European Central Bank (ECB) cut its rate by 25bps this week, and signaled more reductions in the coming year to curb inflation. Some policymakers expect 25bps cuts in January and March, while ECB officials emphasized the data-dependent approach and further discussion on neutral rate will be needed.
Oil: OPEC cut the global demand growth forecast for the coming year. The forecast is still high despite the downward adjustment. Oil prices went up, driven by the higher likelihood of tighter sanctions on Iran and Russia.
AI: Semiconductor and mega tech companies are not the only beneficiaries of AI. AI is also a significant catalyst for energy demand. The electricity demand growth is expected to accelerate from 2.5% to 3.4% over the next two years. More metals will be needed to deploy transition energy technologies, especially those related to energy storage and infrastructure
MARKETS
19,926.72 | +0.34% | |
S&P 500 | 6,051.09 | -0.64% |
Dow | 43,828.06 | -1.82% |
10-Year | 4.39% | +24bps |
Brent | 74.34 | +4.62% |
DXY | 106.94 | -0.92% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: Small business optimism increased, reflected by the post-election rally in a basket of small and mid-sized stocks. Sentiment is highly reflected in the record-high US equity inflows. M&A activities are expected to bounce back due to the potential rollback in regulations.
Morgan Stanley: Stock returns are great despite many contrarian indicators, including high valuations, unfavorable put/call ratio, low implied volatility, long position ratio. Although the expectation and valuation are stretched, room for disappointment is limited.
Fixed Income
Morgan Stanley: We believe the backup of yield reflects two considerations: 1) US may experience higher real growth and inflation than expected, and 2) rate move implies a repricing of long-term neutral policy rate and the rate cut pace. However, it is interesting that stocks did not blink given the expectation of rate cut drop from 160bps to 80bps in 2025. We think rate will eventually matter.
UBS: Investors should consider high-quality bonds as lower rates diminish cash returns. Historically, bonds outperform cash over the long term, and could provide benefits of diversification.
Economy
UBS: The overall condition of US economy should allow the Fed to continue its cutting cycle. Shelter cost remains in the spotlight as it is the largest driver of inflation and has taken longer time than expected to slow. Besides, potential tariffs are not expected to lead to sustained higher inflation over medium term.
Standard Chartered: Central bank policies are going to matter more. Fed is expected to cut rates further to balance growth and inflation risk. More easing fiscal policies would also be a tailwind. In short, we expect the US can achieve soft-landing to no-landing.
KNOWLEDGE TRANSFER
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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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