Equities: Global stocks surged on dovish Fed signals, soft jobs report
Equities: Global stocks surged on dovish Fed signals, soft jobs report
投資總監辦公室6 May 2024
  • Equities: Major global stock markets surged on weaker jobs data in the US; Strong fund inflows supported Hong Kong's Hang Seng Index, which entered a bull market
  • Credit: Inflation uncertainty continues to create volatility, but credit investors should not forget that IG yields today would beat even the most elevated measures of long-term expectations
  • FX: Factors that kept USD strong this year have weakened; AUD can appreciate above 0.6650 if RBA keeps door open for another hike
  • Rates: Recent data weakness insufficient to conclude imminent rate cuts are forthcoming; 10Y yields sticky around 4.40-4.50% until a new narrative takes hold
  • The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; China Inflation Number
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Global equity markets powered higher, led by Asian markets. US stocks rallied as weaker-than-expected jobs data kept the possibility of rate cuts on the table. Scaling back of hiring in April led to the smallest jobs gain in six months and an increase in unemployment. Federal Reserve (Fed) Chair Jerome Powell’s dismissal of a rate hike,  along with better-than-anticipated earnings from Big Tech companies, further boosted market sentiment. The S&P 500 gained 0.6%, while the Nasdaq climbed 1.4% during the week. 

European stocks reacted to a slew of corporate earnings, with the Stoxx 600 dropping 0.5% during the week. Meanwhile, the FTSE gained 0.9% and the Nikkei 225 closed 0.8% higher. The technology sector’s momentum drove Hong Kong stocks into a bull market. The Hang Seng Index surged 4.7% for the week, extending its winning streak to nine consecutive trading days. The rally was fuelled by strong fund inflows, the Chinese government's pledge for increased economic support, and positive data from the Labour Day holiday.

Topic in focus: US equities – A broadening rally.  Our high conviction call on tech-related sectors has paid off well. Despite the strong run-up since late last year, we maintain our positive view given the sector’s robust earnings momentum and strong cash holdings. In our US sector allocation, we have upgraded the energy sector to overweight. In the event of a broadening rally, the sector will be a geared beneficiary given its improving ROE. The sector’s ROE is on the rebound, up from -20.8% in Apr 2021 to 19.3% in Feb 2024. Despite the up move, the P/B ratio remained low at 2.2x (unlike levels seen in 2005-08). Furthermore, massive underweight positions on the energy sector suggest that headwinds have already been priced in.

We have also upgraded the materials sector to neutral. Given the resilience of the US economy, we believe materials will see upside momentum in coming months on the back of sustained uptick in economic activities; historically, the sector’s performance and the ISM Manufacturing Index have been closely correlated. Furthermore, underweight positioning on materials currently stands at -27.0% among US portfolios. This suggests investors’ positioning is light and expectations are low.

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