Rise and shine everyone

Asian markets are stronger this morning, led by Hong Kong and a stronger US market yesterday and overnight.

The US saw Initial Jobless claims rise to the highest level since Nov 2023, at 231K vs. 212K estimates. This takes the 4-week moving average higher to 215k now. Continuing claims also rose. This led some to speculate on the continuing theme from the last Friday’s job report that the Employment market is now weakening which will push the Fed to cut rates. While probable, it’s still too early to call this an event.

US Equity Futures continue higher this morning, with the majority of MegaCap in the green, except Google and Netflix. The US Dollar is stable and Yields have pulled back marginally. Commodities are higher this morning led by copper.

Watch out for Michigan Consumer Sentiment reading at 10am today and China Inflation data later tonight.

The UK is out of a recession and remains an opportunity

The Bank of England voted 7-2 to keep rates steady yesterday, with one additional member now voting for a rate cut. Governor Bailey added during the press conference that the UK was not at the point to cut rates just yet, but it was possible that they would need to cut rates more than what was priced in.

We just received the GDP numbers for UK, and the preliminary QoQ came in at +0.6% after two quarters of negative growth. With this, the UK is now out of a recession and the BoE will probably not be in a rush to cut rates.

Our view is that August is the most likely timing of the first cut, given the trend in inflation still remains sticky and uncertain. Unlike the Euro Area, were inflation is well below 3%, the UK’s last print showed headline inflation of 3.2% and core inflation of 4.2%.

However, the UK market remains undervalued compared to other countries, with a forward P/E of about 11x for the FTSE 100 compared to 21x for the SPX. I’ll admit. the composition is very different, with more defensive stocks in the FTSE, we’re still looking at a situation where growth is improving (helping earnings), and the BoE is getting ready to cut. This remains a bullish idea for us.

Short-Term Hong Kong Momentum

Hong Kong is seeing strong momentum led by property stocks despite Country Garden declaring that they would default on some of their bond payments. China declared support measures relaxing government restrictions on new property purchases, which is boosting stocks in the interim.

The market is looking somewhat overbought over here after today’s move and we may see some pull backs along the way. However, if these pullbacks respect the trend line, the next resistance overhead is at the 20,000 level. Unless the trend line is broken, pull backs could be opportunities to add.

Investing Beyond China

While stocks in China are bullish in the short-term, we have discussed our reservations on the longer-term secular opportunities. And it would seem like we are not the only one.

“529 European firms reported their overall China business sentiment falling to an ‘all-time low’ in an annual survey conducted by the EU Chamber of Commerce”.

The Survey findings show that people are considering other areas of investing beyond China and we can see some of that in the money pouring into India, Mexico, Malaysia and Vietnam. We had published the chart below as part of a our free Global Outlook for 2024, and building off of that, we still view opportunities in the winners. We cover many of the ETFs in our Weekly Dashboard with our views.

Chart of the Day

The VIX and High Yield Spreads have quite a close relationship. We’re seeing HY spreads continue to fall, could that be an indication of where the Vix is heading?

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)