- Equities: US equities traded lower as strong economic data raised fears of higher-for-longer rates
- Credit: Late cycle dynamics imply that investors are better off avoiding losers than picking winners
- FX: USD to stay firm into Fed’s Jackson Hole Symposium
- Rates: Market pricing in higher-for-longer and is pushing the boundaries on the definition of long
- The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; Singapore CPI Numbers
Equities: Markets retreat on strong data
Global equities retreat with eyes on central banks. Global equities closed lower for the week ending 18 August after strong US economic data raised fears of higher-for-longer interest rates. Global equities fell 2.6% for the week, with Developed Markets losing 2.5% while Emerging Markets fell 3.3%.
US equities finished the week in the red, as July retail sales was up 0.7%, almost double the consensus estimates, signalling strong consumer spending which makes up roughly two thirds of the US economy. Minutes from the Fed’s meeting (25-26 July) was interpreted to be generally hawkish as investors worry the Fed would keep rates higher for longer in the face of strong economic data. The S&P 500 and Dow Jones notched weekly losses of 2.1% and 2.2% respectively, while NASDAQ traded lower by 2.6% for the week.
European markets also traded lower on surprisingly strong wage growth; the FTSE 100 lost 3.5% while the DAX was down 1.6%. Asian equities retreated as China’s economic activity continued to weaken; SHCOMP and HSCEI registered 1.8% and 6.0% losses respectively.
Topic in focus: Rejuvenating Europe’s luxury sector. Europe’s luxury sector was not spared from the global retreat in stocks prompted by higher-for-longer rates and “China woes” narratives. However, we believe the fundamentals for the sector remain strong. The luxury sector benefits from discretionary consumer spending which are less price sensitive. These companies are investing in marketing initiatives, rebranding efforts, and acquisitions to capture a larger portion of the market, which is largely comprised of millennials' spending habits and an expanding middle class. A noteworthy example is Tiffany & Co., whose strong performance can be attributed to a new approach implemented after its acquisition by LVMH. This strategy shift involves a greater focus on social media and celebrity endorsements in its advertising, successfully connecting with younger consumers. As a result, Tiffany now holds the distinction of being the group's second-largest brand.
Our positive stance on this sector persists and we recommend that investors accumulate high-quality stocks within the sector. The removal of restrictions on Chinese group travel abroad could potentially lead to an upswing in Chinese tourists on a global scale, providing a favourable backdrop for further growth.
Figure 1: Positive earnings revision should stabilise the sector’s retreat
Source: Refinitiv, DBS
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