Multi-Asset Weekly: Trepidation Amid Global Elections
US Equities fell despite US banks passing stress test. On Wednesday (26 Jun 2024), the Fed announced that all 31 banks passed this year’s annual stress test. This test aims to assess the banks&...
Chief Investment Office - Hong Kong1 Jul 2024
  • Equities: US equity markets fell despite positive news of banks passing Fed’s annual stress test; major US banks announced plans to increase dividends to return excess capital to shareholder
  • Credit: Analysis of past yield curve reactions to rate cuts suggests high probability of bull steepening, indicating potential for capital gains in credit markets at the end of a tightening cycle
  • FX: USD to depreciate amid expectations of two Fed cuts in 2H24; Fed cuts to eclipse efforts of other central banks in removing top-level restrictions in their monetary policies
  • Rates: Bear steepening drove 2Y/10Y spread to -35 bps; US Treasuries curve factoring base case of Trump returning as President
  • The Week Ahead: Keep a lookout for US Change in Nonfarm Payrolls; Singapore PMI number
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US Equities fell despite US banks passing stress test. On Wednesday (26 Jun 2024), the Fed announced that all 31 banks passed this year’s annual stress test. This test aims to assess the banks’ ability to handle a major financial crisis via a hypothetical scenario where commercial real estate value plummets by 40%, housing price declines by 36%, and unemployment rises to 10%. The result demonstrated the resiliency of the banking sector as the banks have sufficient capital to navigate significant economic changes and meet the Fed’s minimum capital level. As a result, large banks like Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, and Wells Fargo announced plans to increase dividends as they would be able to return some excess capital to shareholders. Despite the positive announcement, S&P 500 and Dow Jones both reported a loss of 0.1% for the week.

Topic in focus: Europe equities – Strong value proposition. The European equity market has shown mixed performance with the Stoxx Europe 600 up 6.8% YTD, lagging the S&P 500's 14.5%. This underperformance can be partly attributed to France's snap elections which stoked fears in their equity markets and impacted overall European sentiment. Despite these challenges, certain sectors within European equities continue to show strength:

  • Luxury: European luxury brands dominate the "Quiet Luxury" trend, showing resilience to economic fluctuations. These stocks appeal to affluent millennials and benefit from strong pricing power. The sector is poised for growth, driven by global affluence, tourism, and events like the 2024 Paris Olympics.
  • Technology: European tech companies are well-positioned to capitalise on AI advancements, particularly in IT services. The region is home to the world's leading semiconductor lithography tool manufacturer, crucial for developing next-generation electronic devices.
  • Healthcare: European pharmaceutical giants like Roche, Novartis, and Novo Nordisk are at the forefront of AI-powered drug development. The sector is exploring promising areas such as cancer vaccines, leveraging mRNA technology.

These industries are attracting increased investor attention due to their strong fundamentals, growth prospects, and potential for innovation. As global investors seek to diversify and capitalise on European equities' relatively lower valuations, these sectors are likely to benefit from increased capital inflows.



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