Mini Program: Daily summary of investment bank/institutional views
1. Goldman Sachs: Stock market volatility will gradually decline
The Goldman Sachs team, led by David Kostin, said historical analysis of previous growth scares showed that stock correlations and volatility "will only gradually return to 'normal.'" The team said the rout has shifted the market's focus back to macro drivers from the micro drivers that drove the rebound in the first half of the year. If concerns about the economy abate, "then the recent sell-off represents an opportunity to buy fundamentally healthy stocks at a valuation discount," they wrote in a recent report.
2. Goldman Sachs: Technology and small-cap stocks regain their appeal
Luke Barrs, global head of fundamental equity client portfolio management at Goldman Sachs Asset Management, said the U.S. stock market crash removed "a lot of froth" from the market, making some technology and small-cap stocks attractive again. "We are now focused on whether we can buy some selected technology and small-cap stocks, and we think that interest rate normalization should be very helpful to this still undervalued asset class." Barrs said they are still cutting positions in large cloud service providers because their stock valuations are expensive and industry competition is intensifying. He added that the company currently expects the Federal Reserve to cut interest rates three times by the end of the year.
3. Citi: The yield spread between Italian and German 10-year government bonds still has room to expand
Aman Bansal, a rates strategist at Citi, said in a note that the 10-year Italian bond yield spread over German bonds looks too narrow based on Italy's fundamentals, so there is room to widen. He said in a note that with a significant increase in supply expected in September, the spread could widen before falling in the fourth quarter. "Overall, the risks seem tilted toward further widening before narrowing, with the 10-year Treasury yield spread likely to move to a range of 145-160 basis points," he said.
4. Bank of America: Market decline has not yet broken through key levels
Michael Hartnett, a strategist at Bank of America, said turmoil in global financial markets has not yet reached a level that would trigger concerns about a hard landing for the economy. Even though the S&P 500 has fallen about 6% since its all-time high in mid-July, the index has remained above its 200-day moving average of around 5,050, while the U.S. 30-year Treasury yield has not fallen below 4%. Hartnett said: "The technical level for the market to turn from a soft landing to a hard landing has not been broken. Investor feedback is 'restless', but expectations of a Fed rate cut mean that investors' preference for stocks has not ended with the market crash."
5. UBS: EUR/USD is expected to gradually rise
UBS Global Wealth Management carefully considered the sharp market fluctuations last week, noting that the euro/dollar EUR/USD was only slightly affected. UBS pointed out that American exceptionalism (that the US economy outperformed the rest of the world) was the key to the Federal Reserve holding higher interest rates for a longer period of time compared with other central banks around the world. But now American exceptionalism will disappear, which led to the Fed's rate cuts and the euro to rise against the dollar. UBS also warned that the US election may lead to a short-term setback in the exchange rate.
6. UBS: If the Fed cuts interest rates more than the Bank of England, the pound may rise
UBS Global Wealth Management said that the British pound could strengthen against the U.S. dollar GBP/USD during the rest of the year as the Federal Reserve is likely to cut interest rates more aggressively than the Bank of England. "Our latest view is that the Fed will cut interest rates by 100 basis points by the end of the year, while the Bank of England will only cut interest rates by 50 basis points over the same period, so fixed income investment flows will increasingly favor higher GBP/USD," UBS analysts said in a report. They said that GBP/USD could rise to 1.30 by the end of the year.
7. BlackRock: Trump risks challenging the independence of the Federal Reserve
Wei Li, BlackRock's global chief investment strategist, said Treasury investors should consider the possibility of a Trump presidency after Trump said he would seek to influence U.S. monetary policy if elected. "When we think about what could happen, there is that risk," Li said, adding that fiscal issues would also affect demand for long-term Treasuries. Trump said on Thursday that the president should have some say in setting interest rates. Both during his presidency and more recently on the 2024 campaign, Trump's challenges to the independence of the Federal Reserve have broken the long-standing norm that the president does not influence the decisions of Fed policymakers. "No matter who is in the White House, all of this suggests that we need to think more carefully about portfolio construction around U.S. Treasuries in the future," Li said.
8. Royal Bank of Canada: Canada's labor market continues to cool and interest rates will be cut next month
Nathan Janzen of Royal Bank of Canada believes that the latest Canadian labor force data shows no signs that the continued cooling of the labor market has ended. Due to a sharp decline in the labor force participation rate, the number of employed people changed little in July and the unemployment rate remained stable. The unemployment rate is still nearly a percentage point higher than a year ago, and although wage growth is still high, it will continue to decline. Therefore, against the backdrop of a weak economy and still high inflation, Janzen expects the Bank of Canada to cut interest rates for the third time in a row next month.
9. JPMorgan Chase: Recession remains the most likely outcome for the U.S. economy
According to News.bitcoin, JPMorgan Chase CEO Jamie Dimon reiterated that recession is still the most likely outcome for the U.S. economy, and he insisted that the probability of a "soft landing" is only 35% to 40%. In an interview with CNBC, Jamie Dimon emphasized the continued uncertainty facing the market, pointing out that geopolitics, housing, deficits, spending, quantitative tightening, and elections can all cause panic in the market. Despite his cautious attitude, he admitted that the economy is performing better than expected.
10. Morgan Asset Management: It is expected that the Bank of Japan will avoid raising interest rates again in the short term
JPMorgan Asset Management said the Bank of Japan will avoid raising rates again in the short term, and further tightening may depend on the direction of the U.S. economy. "The Bank of Japan actually has a path to act again, but that is a path where the Fed cuts rates and tries to stabilize the U.S. economy," said Seamus Mac Gorain, the firm's global head of rates. "Of course, if the U.S. falls into recession, that's the way to go." JPMorgan Asset Management is betting that the gap between short-term and long-term Japanese government bond yields will narrow.
11. ING: Key UK data below expectations may trigger a fall in the pound
ING Bank said that British employment and inflation data released later this week may be slightly lower than expected, which may push up expectations for a rate cut by the Bank of England, and the pound may fall as a result. ING Bank analyst Chris Turner said in a report that the market's expectations for the Bank of England's rate cut cycle for the rest of the year are "a bit too conservative" and the euro against the pound may remain above 0.8500-0.8550. The euro was flat against the pound on Monday, around 0.8554. The UK will release employment data on Tuesday and inflation data on Wednesday.
12. Bank of New York Mellon: Carry trades will be further closed, and the yen/dollar may rise to 100
Bank of New York Mellon said that carry trades using the yen as a funding currency will be further unwound, and the yen-dollar exchange rate may rise to the 100 level over time. Bob Savage, head of market strategy and insights at Bank of New York Mellon, wrote in a report that investors are still too bearish on the yen and short positions will continue to be cut. An analysis shows that the yen is currently too cheap at 147 to the dollar, and the fair value of the yen should be closer to 100 over time. Savage said that the pain of yen shorts is expected to last for weeks or even months. Further risk reduction will follow, and August will continue to be a highly volatile month.
Article forwarded from: Jinshi Data