HIGHLIGHTS
The Trump administration's agenda should drive the financial markets in the upcoming months. Republicans have gained control over both Houses of Congress, which gives the Trump administration the power to implement its agenda.
China Stimulus: The sizable stimulus efforts are focused on putting a floor under the real estate market and saving local government rather than boosting consumption. Due to the impact of the tariffs, economic growth is expected to be below consensus.
Immigration: The immigration-related actions should slow down new immigration and reduce growth. It is expected that the deportation of undocumented immigrants to be around 500k a year instead of millions as mentioned in the campaign.
Japan: Ishiba remains Prime Minister of Japan, and the markets are watching the economic stimulus package closely. The drivers for USDJPY would be the macro data, central bank policy and dollar strength. Recent solid producer price index data support the Bank of Japan rate hike path, while the risk of an unexpectedly strong dollar still exists.
MARKETS
18,680.12 | -3.15% | |
S&P 500 | 5,870.62 | -2.08% |
Dow | 43,444.99 | -1.24% |
10-Year | 4.43% | +12bps |
Brent | 71.04 | -3.96% |
DXY | 106.67 | +1.64% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Morgan Stanley: US equity indices are not reflecting the appropriate risk premiums, given the number of policies including tax cuts, tariffs, immigration and fiscal overhaul. We prefer to be stock pickers amid the low equity risk premium backdrop.
J.P. Morgan: The current economic outlook is favorable to equity markets. Decreasing interest rates and increasing real wages are good for consumer spending. Operating margins of the major companies are above the long-term average, with the support of secular trends.
Fixed Income
UBS: We expect interest rates will continue to drop and cash returns to fall. The latest data is sufficient for the Fed to continue to cut rates by 25bps at December meeting. Cash returns will drop as global central banks are expected to cut rates further.
Morgan Stanley: Fed has cut rates by 75bps since September. Markets have been impacted by potential overheating growth, increasing inflation and the US deficit, which offset the effect of rate cuts.
Economy
Goldman Sachs: We expect the inflation in the US will decelerate by late next year, while Fed will cut rate to 3.25-3.5%. The key risk to the economic outlook would be the likelihood of large across-the-board tariffs.
Barclays: Although the risk of tariff war still exists, many other downside risks have faded. Uncertainty of post-election has been cleared, oil prices are less correlated to the Middle East war, and unemployment rate is at a low level in Western countries.
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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