((Automated translation by Reuters, please see disclaimer https://bit.ly/rtrsauto))
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The main US indexes were little changed; the Nasdaq is slightly up
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Technology sector leads S&P 500 gains; the energy sector is the most declining
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The Euro STOXX 600 index lost ~0.4%
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The dollar is up slightly, bitcoin is up more than 1%; crude oil is down, gold down more than 1%
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The 10-year US Treasury yield rises to ~4.42%
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GLOBAL EQUITIES ARE ON THE RISE IN A SCENARIO OF GOLDILOCKS AND MINI STAGFLATION – HSBC
Equity markets face various macroeconomic scenarios as investors weigh the risks of long-term high interest rates and possible stagflation.
HSBC believes that greater clarity from the Federal Reserve, “even if it leans on the more hawkish side”, will ease market pressures. In this case, strategists see upside potential for global stocks in both a Goldilocks scenario and a mini stagflation scenario.
“After all, the exact timing of the Fed’s cuts is not expected to drastically affect stocks, particularly if any delay is due to the strength of the economy,” they said in a note.
Furthermore, a recession implies greater downside risk for stocks, although it is a less likely scenario, they say.
HSBC estimates that the market currently rates a 40% chance of a mini stagflation/higher scenario for longer over the next twelve months, a 35% chance of two to five 25 basis point rate cuts ( goldilocks), and at 25% the probability of a recession which would require greater reductions.
Expectations for a September Federal Reserve rate cut rose after U.S. consumer prices rose less than expected in April, suggesting inflation has resumed its early downward trend of the second trimester.
According to the CME’s FedWatch tool, traders estimate a nearly 63% chance that the Fed will cut rates in September by at least 25 basis points.
Regarding regional allocation, HSBC is moving the UK from ‘underweight’ to ‘neutral’ as it could be a ‘good source of cheap, defensive exposure to commodities and yields, which which could prove useful at the dawn of a more volatile second half.”
It remains “overweight” in the US and emerging markets, with these two markets likely to provide “the most resilient earnings estimates”, while it downgrades Canada to “underweight” due to a weaker report risk/return.
(Matteo Allievi)
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