1. Citi: Client positions reflect bearish trend in US stock market

Citigroup strategists believe that the sell-off in U.S. stocks last week has left major indexes with further downside potential. Strategists Chris Montagu and others said in a note to clients on Monday that a large liquidation of long positions in the S&P 500 and an increase in short positions in the Nasdaq 100 suggest that risk appetite has shifted to a more outright bearish bias. They said hedge funds' de-risking of the S&P 500 has left total exposure at half its mid-July peak.

2. HSBC strategist: more optimistic about US stocks due to resilient earnings outlook

HSBC strategists said they were adding to their overweight positions in U.S. stocks given the resilient third-quarter earnings outlook, given labor market data that suggest the economy is cooling more than on the brink of recession. The team led by Max Kettner said beating third-quarter earnings expectations for U.S. companies “looks like a piece of cake,” and they wrote in a report that certain sentiment, positioning, and technical indicators are flashing contrarian buy signals.

3. Morgan Stanley: If the Fed cuts interest rates sharply, further liquidation of carry trades may put US stocks at risk

Morgan Stanley strategist Michael Wilson believes U.S. stocks could be at risk of further unwinding of yen carry trades if the Federal Reserve cuts rates aggressively this month. He noted that an initial rate cut of more than 25 basis points could support the yen. That would prompt yen traders to move out of U.S. assets after domestic rates move higher, repeating a pattern that sent global markets into turmoil last month. "The unwinding of yen carry trades is likely to remain a risk factor behind the scenes," Wilson wrote in a note. "A rapid decline in U.S. short-term rates could lead to further yen strength, prompting a negative reaction in U.S. risk assets."

4. Royal Bank of Canada: US stocks still have room to fall further

Strategists at RBC Capital Markets said that U.S. stocks may continue to fluctuate in the short term and fall further, driven by risks such as seasonality, sentiment and the presidential election. "Any further damage will be contained to a 10% correction," the team led by Lori Calvasina wrote in a report. They warned that if concerns about a hard landing escalate, the risk of a panic-driven 14%-20% decline in economic growth "will also rise." Strategists pointed out that surprisingly, investor sentiment and positioning became more nervous last week. The recent rise in indexes such as the VIX index has exacerbated market concerns about a correction.

5. Royal Bank of Canada: If the European Central Bank and the Federal Reserve cut interest rates simultaneously, the euro may fall slightly

RBC Capital Markets noted that the reassessment of American exceptionalism has boosted bets on Fed rate cuts, driving the euro's recent gains, but the euro-dollar exchange rate may fall to 1.08 in the fourth quarter from the current level of around 1.105. Elsa Lignos, a foreign exchange strategist at RBC, said in a report that economists' forecasts have not changed as much as the euro-dollar price trend suggests, and the probability of a recession in the United States and the eurozone in the next 12 months is 30%. "The Fed is expected to start cutting interest rates this month, and we expect the rate to be 25 basis points, but the ECB is also likely to continue to cut interest rates, also by 25 basis points." Lignos said that both the Fed and the ECB should cut interest rates by 75 basis points this year.

6. Jefferies: The ECB’s interest rate path is clearer than the Fed’s

Mohit Kumar, global economist at Jefferies, said the ECB's interest rate path is much clearer than the Fed's, given that it has already started cutting rates. For the ECB's upcoming meeting on Thursday, Jefferies predicts that the bank will cut interest rates by 25 basis points, in line with market expectations. "We expect the ECB to cut interest rates at a gradual pace of 25 basis points per quarter at the next meeting, depending on the data, and lower interest rates to below 3%," he said in a report. Kumar said that if economic growth and inflation data meet expectations, the ECB's interest rate trough is expected to be around 2.50%-2.75%. The ECB's current deposit rate is 3.75%.

7. Swissquote Bank: ECB rate cut bets have room to rise

The euro could give up some of its recent gains if the European Central Bank cuts rates on Thursday and shows enough progress in inflation to justify further easing, Swissquote Bank said. Eurozone inflation is slowing and there is room for bets on ECB rate cuts to increase given expectations of aggressive Federal Reserve rate cuts, Swissquote analyst Ipek Ozkardeskaya said in a note. But she said that unlike the Fed, the ECB has a single mandate: to maintain price stability. "So if European officials see even the slightest chance that inflation could accelerate in the coming months, the ECB may not allow itself to be tempted to cut rates more quickly."

8. UniCredit: Euro credit default swaps remain stable ahead of US inflation data and ECB meeting

The cost of using credit default swaps (CDS) to insure euro-denominated credit against a default was steady ahead of U.S. inflation data on Wednesday and the European Central Bank’s rate decision on Thursday. “Monday’s data was very light and will not provide investors with new stimulus until more significant events occur later in the week,” UniCredit analysts said in a note. UniCredit said it expects the ECB to cut interest rates by 25 basis points at its meeting this week. The iTraxx Europe Crossover index, which tracks euro high-yield CDS, fell 1 basis point to 303 basis points, while the iTraxx Europe Main index, which tracks euro investment-grade CDS, was unchanged at 56 basis points, according to S&P Global Market Intelligence data.

9. Macquarie: The Bank of Canada is expected to cut interest rates by 25 basis points by mid-2025

Macquarie economists expect the Bank of Canada to cut interest rates by 25 basis points by July next year, when the policy rate is expected to reach 2.5%. They added that the possibility of larger, earlier easing of policy is a downside risk. Macquarie said the September employment report will be weak again, and further evidence of slowing inflation could prompt the Bank of Canada to cut interest rates by 50 basis points. The slack in the labor market is the result of private sector companies not hiring employees rather than laying off employees.

10. Capital Economics: Swedish inflation may resume downward trend

Swedish inflation data for August will be released on Thursday. Capital Economics noted that Sweden's inflation rate is likely to resume its downward trend in August, which should prompt the Riksbank to cut interest rates in the remaining three meetings of the year, reducing the policy rate from 3.5% to 2.75%. The Riksbank's target indicator CPIF inflation rose from 1.3% in June to 1.7% in July, but this was due to rising energy prices, while the core indicator - CPIF inflation excluding energy - fell slightly. Capital Economics believes that Swedish household energy inflation is likely to fall in August, while CPIF inflation excluding energy may also fall. CPIF inflation is expected to be 1.3% in August and 2.0% CPIF inflation excluding energy. Capital Economics expects Sweden's CPIF inflation rate to remain below 2% for the rest of the year.

11. Societe Generale: If UK economic data exceeds expectations, the pound may appreciate

Societe Generale said in a report that the economic growth differential between the euro zone and the UK has been positive for the pound this year, and if the UK data released later this week exceeds expectations, the pound may strengthen further. Kit Juckes, a foreign exchange strategist at Societe Generale, said that the pound has been the best performing European currency this year, but has stagnated in the past few weeks. He said that if the UK labor market data on Tuesday and economic growth data on Wednesday are stronger than expected, the euro against the pound EUR/GBP may fall below 0.84.

Article forwarded from: Jinshi Data