HIGHLIGHTS
US equities went up and hit a record high this week after the election. The volatility index VIX dropped rapidly. The Fed cut the rate by 25bps as expected. The upcoming theme will be the actual implementation of the promised policies.
Policy Agenda: Markets expect the new administration to cut taxes and regulations, supporting smaller companies. Russell had its best week in four years, going up 8%.
War Risk: Markets interpreted a Trump win as eliminating the risk of war, reflected by the drop in gold prices. Oil demand is expected to drop further, while the price is still supported by the supply side as OPEC+ announced the delay of the oil output in December.
China: The National People’s Congress of China announced a RMB 6 trillion debt swap plan to help with the local government debt crisis. The debt resolution program will be expanded over the next 3 years. However, the Chinese equities and yuan both dropped as the officials did not announce additional support for bank recapitalization and consumption.
MARKETS
19,286.78 | +5.74% | |
S&P 500 | 5,995.54 | +4.66% |
Dow | 43,988.99 | +4.61% |
10-Year | 4.31% | -5bps |
Brent | 73.97 | +1.45% |
DXY | 104.95 | +0.60% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Morgan Stanley: The earnings results are decent, while the earnings guidance is at bad levels. Consensus forecast is dropping and multiples are expanding. There are more constraints on gains especially since the long-term rates are staying at high levels.
UBS: Chinese stocks are under pressure due to the high probability of large tariffs on Chinese exports to the US. However, we can keep an eye on the aggressiveness of the Chinese stimulus policy in response.
Fixed Income
Morgan Stanley: The US treasury market has been volatile since post-COVID. Rates have been up aggressively in the previous month amid a better growth outlook and increasing odds of a Republican sweep. There was a massive sell-off in duration. It could be a good entry point if economic growth is under pressure of election.
Standard Chartered: Long-term bond yields increased as the market expected Trump’s win would lead to higher deficits and more treasury issuance. However, the expected impact is relatively contained as the 10Y treasury yield has not arrived at the previous high early this year.
Economy
UBS: Market participants believe the policies around migration, and trade would boost inflation, hence dragging the pace of the Fed rate cut. Fed officials did not provide guidance on the possibility of another cut in December.
Barclays: The global economic outlook is highly dependent on the sequence and degree of Trump’s policies, including deportation, tariffs, taxes, and deregulation. In the coming year, slow growth and inflation pressure will lead to diverging rate paths.
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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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