Multi-Asset Weekly: Global Equities Slump As Post-Election Rally Fizzles Out
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Chief Investment Office18 Nov 2024
  • Equities: Markets contend with worries of higher-for-longer interest rates
  • Credit: Fed's limited room for rate cuts and hawkish shift in policy outlook could reshape HY credit
  • FX: Trendline support of 1.2570 for GBP/USD; AUD/USD appears oversold below 0.65
  • Rates: 2Y/10Y UST curve expected at the 0-20 bps range
  • The Week Ahead: Keep a lookout for US Initial Jobless Claims; Japan Inflation Number
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Equities: Post-election rally fizzles out

Worries about interest rates see markets pull back. Markets have retreated off their highs post-Donald Trump’s victory in the US elections. The Dow, S&P 500 and NASDAQ were down 1.2%, 2.1%, and 3.1% respectively for the week, on worries that interest rate cuts might come slower than anticipated due to robust economic growth and a solid labour market in the US. European stocks also had a tough week with the STOXX 600 retreating -0.7%; healthcare stocks fell 3.0% post-Trump’s nomination of Robert F. Kennedy Jr. to lead the Department of Health and Human services.

Asia equities followed suit with the Nikkei 225, SHCOMP, HSCEI, and Hang Seng falling 2.2%, 3.5%, 6.5%, and 6.3% respectively last week. Market catalysts for the upcoming week include NVIDIA’s earnings, as well as China’s loan prime rate release, both of which are scheduled to happen on Wednesday (20 Nov). Japan will also release key macro data, including trade data on Tuesday (19 Nov) and October inflation figures on Friday (22 Nov).

Topic in focus: Lacklustre earnings season for Nikkei 225. We are approaching the end of the earnings season with c.98% of the companies having reported their earnings (as of 15 Nov 2024). Unfortunately, the results this quarter have been underwhelming with a mere 42% of companies reporting positive earnings surprises. This marks a significant decline compared to the previous quarter where 61% posted earnings beat. Utilities, financials, and health care sectors produced the highest positive earnings surprises at 100%, 71%, and 62% respectively.

From a sectoral perspective, we continue to advocate exposure to financials, especially Japan banks. After years of being bound by near-zero rates, the sector is poised for a turnaround as interest rates begin to normalise. This shift is expected to drive a meaningful improvement in net interest margins for Japan’s banks. Japan megabanks are especially well-positioned to benefit from this trend due to their broader deposit bases which amplify the gains from widening lending spreads. As a result, net income and return on equity (ROE) continue to show steady expansion, driven by better returns from higher rates and a more optimised balance sheet. Additionally, Japan banks are responding to government pressure by unwinding their large holdings of equity stakes in domestic corporations. For example, MUFG and SMFG Inc have announced plans to divest JPY1.32tn (USD8.5bn) worth of strategic shareholdings in Toyota. This helps reduce risk exposure and free up the banks’ capital, enabling them to drive further growth.

Figure 1: Disappointing earnings season for Nikkei 225

Source: Bloomberg, DBS



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