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- Equities: US equities hit record highs on the Fed's rate cut and strong data; Japanese and Chinese markets also gained, boosted by the Fed's decision despite weaker economic indicators
- Credit: The materialisation of Fed rate cuts is opportune for deploying cash to credit and securing against cash reinvestment risk
- FX: DXY to depreciate into 95-100 range through 2025 amid Fed’s rate cutting cycle; US Presidential elections on 5 Nov not expected to support the greenback
- Rates: Current backdrop benign for Asia local currency govvies; tailwinds for IndoGBs amid BI monetary easing and weak USD
- The Week Ahead: Keep a lookout for US Change in FOMC Rate Decision; Japan BOJ Target Rate
Related Insights
US equities reached all-time highs amid Fed cut and strong economic data. US equities surged to record highs as markets reacted to the Fed’s decision to cut interest rates by 50 bps, marking the first rate cut since Mar 2020. The rate cut came amid mixed sentiment with some critics arguing that the Fed acted too aggressively, given the strong economic data. Retail sales came in better than expected (0.1% vs -0.2% consensus), while initial jobless claims fell to its lowest in three months, signalling consumer strength. The S&P 500 and Dow Jones gained 1.4% and 1.6% respectively with both closing at new all-time highs.
Over in Asia, Japanese equities rose; Nikkei 225 was up 3.1% as the combination of a weaker yen, Fed’s rate cut, and BOJ’s decision to hold rates steady supported equities. Chinese equities were also up over the week with the SHCOMP and Hang Seng up 1.2% and 5.1% respectively, driven largely by the Fed’s rate cut. However, domestic economic data remained weak with August industrial production falling below expectations and retail sales showing signs of slowing.
Topic in focus: Evolving luxuries. Following a strong rebound in 2021-22, the global luxury sector is grappling with challenges from slowing economic growth and dampened consumer spending. Last year saw a slowdown across Europe and the US, while China’s initially strong performance decelerated in the second half, leading to slowing sales and an uneven performance. McKinsey forecasts the sector to grow by 3–5% this year, down from 5–7% in 2023. A 2024 survey by PwC suggests that shoppers are shunning luxury items in favour of essentials; about 40% of respondents anticipate that they will be spending less or nothing at all on luxury goods over the next six months.
Still, we believe pockets of growth exist. Markets such as Japan are emerging as new growth areas; Savills’ Global Luxury Retail 2024 Outlook shows that while new store openings fell 12% in China, the wider Asia Pacific region reported an increase in new store activity. Tokyo and Singapore were key behind this increase, helped by a pick-up in tourism and a weak yen. During China’s eight-day Golden Week holiday in October last year, Hainan emerged as a top hotspot for tax-free shopping, highlighting opportunities in strong domestic travel. We maintain luxury as a long-term structural growth sector; in particular, widening income gaps will highlight less price-sensitive and more exclusive, experiential-driven demand. As the industry continues to be challenged by near-term headwinds, stay with quiet luxury brands that can adapt to changing preferences and are able to maintain a connection beyond material satisfaction, thereby becoming more resilient against economic downturns.
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