HOPES THAT THE FED WILL PAUSE SEND STOCKS HIGHER
CBH Compagnie Bancaire Helvétique SA
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US equities rallied last week as the market weighed moderating employment figures on whether the Fed will pause rate hikes. S&P 500 gained 2.5%; Nasdaq 100 surged 3.7%, and Dow Jones rose 1.4%. Nonfarm payrolls increased by 187,000 in August but unemployment rate jumped to 3.8%, the highest reading since February 2022. Moderation might give the Fed some room to pause rate hike in the upcoming meeting to be held on 19-20 Sep.
European stocks increased last week as market optimism increased over a potential rate pause in the US. Stoxx Europe 600 gained 1.5%. Eurozone inflation slowed further as consumer prices increased by 5.3% in July versus 5.5% in June, which might ease pressure on the European Central Bank to continue raising rates.
In China, CSI 300 gained 2.2% last week due to a series of confidence boosting measures from Beijing. Last Friday, the People’s Bank of China announced the cutting of foreign currency reserve ratio from 6% to 4% to help support the weakening yuan. The Caixin manufacturing purchasing managers rose to 51 last month, beating analysts’ estimates and curbed pessimism in China.
CHART OF THE WEEK
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Brutal Bearishness on China
The past few months have brought a stream of bad news for China's economy: slower than expected growth after the reopening of Covid-19, record youth unemployment, weak exports and currency, limited foreign investment, and a worsening property sector in crisis.
In the last 3 weeks, more than 400,000 news articles were published mentioning China. More than 10% of them were explicitly NEGATIVE, the highest ratio in at least a decade! We credit the most iconic one to The Economist , which claims that Xi won't fix China's economy, showing a creature with the head of a dragon and the body of a snail.
Bearishness on China is brutal and we believe that the KWEB (universe of publicly traded China-based companies whose primary business is in internet-related sectors) is nearing the end of its shake-out cycle initiated in 2020, which sent its value tumbling by 80%.