- Equities: US markets gain on better economic data, Europe markets higher on faster rate cut expectations; slowing e-commerce sector impacts China markets
- Credit: Tightening credit spreads amid rising growth/inflation uncertainties signal investors to stay up in quality and consider hedging strategies
- FX: “Trump Trade” lifted DXY by 6.7% since 30 Sep; profit-taking on the cards ahead of Thanksgiving week
- Rates: 2Y/10Y segment of UST curve flattened post-elections; Fed to signal wait-and-see attitude after delivering one more cut in December
- The Week Ahead: Keep a lookout for US Initial Jobless Claims; Japan Industrial Production Number
Related insights
US markets resume rallies on better economic data; Europe flies higher on rate cut expectations. Markets resumed their rallies post-Donald Trump’s victory in the US elections as lower initial jobless claims and growth in housing demand boosted sentiment. The Dow, S&P 500, and NASDAQ gained 2.0%, 1.7%, and 1.7% respectively for the week. Investors shrugged off worries that interest rate cuts might come slower than anticipated amid the escalation of the Russia-Ukraine war. Nvidia reported good results, though investors’ expectations were higher. Hence, its share price initially fell before recovering. Disappointing economic data in Europe boosted expectations of faster rate cuts, leading to European stocks climbing higher with the STOXX 600 rising 1.1% and the FTSE jumping 2.5%. Chinese equities fell as underwhelming PDD Holdings earnings indicate slowing e-commerce sector earnings growth amid increasing pricing competition and weakening demand, with the Shanghai Composite Index down 1.9% and the Hang Seng Index dropping 1.0%.
Topic in focus: Cloudy outlook for Europe equities. As the year progresses to a close, the outlook for European equities remains downbeat. Economic growth in Europe (in particular, its largest economy, Germany) continues to be weighed down by weak private consumption and construction activity. The conclusion of the US elections further muddies the picture—Trump 2.0 comes with promises of a wider trade war which includes installing a blanket tariff of 10-20% on all imports and additional tariffs of 60-100% on goods brought in from China. These uncertainties will continue to suppress the earnings outlook for European companies, in particular, those heavily reliant on manufacturing.
Lack of growth drivers. The STOXX 600 Index currently trades at a forward P/E ratio of 13.2x, hovering below its 10Y average of 14.1x. Given prevailing weak macroeconomic conditions and concerns regarding the sustainability of corporate earnings, we anticipate that valuations will remain muted in the short term with limited catalysts that could trigger a sustained upward rating from current levels. Until substantial improvements are seen in corporate earnings, we do not foresee an imminent rebound for Europe equities. While we maintain our underweight position on Europe, we remain optimistic on long-term structural themes such as quiet luxury, healthcare, technology, and healthcare.
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