- Equities: US and Europe stock markets higher on lower inflation and dovish Fed comments
- Credit: Economic and fiscal concerns highlight that elevated short-term rates are unsustainable
- FX: USD on the defensive during Fed’s blackout period
- Rates: Expect cut around mid-2024 with risk leaning towards earlier cuts
Equities: US and Europe stock markets rise on cooling inflation, Asia markets slip
The Dow Jones, the S&P500 and the NASDAQ rose 2.4%, 0.8%, and 0.4%, respectively. Dovish comments from Fed officials and slower inflation at 3.2% in October compared to 3.7% in September boosted market sentiment. Europe stock markets also climbed higher on falling inflation of 2.9% in October compared to 4.3% in September and lower bond yields. The FTSE 100 and Stoxx 600 gained 0.5% and 1.4% for the week. The Nikkei 225 fell on profit taking as the yen strengthened to 147 against the US dollar. The Shanghai Composite Index dropped 0.3% as November PMI remained in contractionary territory. The HSCEI and HSI plummeted 4.6% and 4.2% on downgrades by various stockbrokers highlighting continued concerns over China’s recovery.
Topic in focus: ASEAN markets to perform. It has been somewhat an underwhelming year for ASEAN as weakness in the exports cycle continues to bite. However, we note that the weakness was a legacy of the pandemic which went through a boom-bust cycle due to underinvestment and pent-up demand. We think the payback is coming to an end and should normalise in 2024 as early indicators show signs of bottoming. We expect better sentiment in ASEAN markets as we foresee a less hawkish Fed, USD weakness, and lower yields in 2024. Economic growth is forecast to be stronger with exports and investment recovery being the key drivers, while consumption heals from high inflation and interest rates. Growth should stabilise after past few years of volatility from pandemic, soaring commodity prices, high interest rates, and disruption from geopolitical instability.
The region has consistently outpaced global economic growth, providing a fertile ground for businesses to expand. ASEAN is projected to be the fourth largest in the world with a nominal GDP exceeding USD4t by 2030. ASEAN economies, collectively and individually, have demonstrated resilience in the face of global economic challenges. Structural tailwinds, favourable demographics, and increased regional integration contribute to economic stability.
Figure 1: ASEAN markets perform well in a weak USD environment
Source: LSEG, DBS
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