Three questions for the Week Ahead!

00:00:00: Hi and welcome to Swisscodes daily market talk.

00:00:04: It's Monday, the twenty-eighth of September.

00:00:06: oil prices and global yields start week on the rise leaving investors with difficult choices.

00:00:11: On one hand, equities have become materially cheaper as strong earnings growth drives valuation multiples lower but on the other hand increasingly attractive bond yields are raising competition for capital.

00:00:23: so three questions will dominate this week full of data Will inflation keep central banks hawkish?

00:00:29: Can equities withstand higher yields and for how long?

00:00:33: And Three can Strong AI Earnings continue to protect markets?

00:00:37: So we'll talk about all that and more.

00:00:39: but before we do, as always please keep in mind that opinions are my own.

00:00:45: And this is not financial advice!

00:00:55: So the new week starts with renewed advance in oil prices As the US & Iran are still talking.

00:01:00: they're talking But there's no resolution inside.

00:01:04: so bonds around their pressure This morning in Asia and a multi-decade high yields on sovereign bonds globally make equities uncomfortable.

00:01:12: Because on one hand yields at the current level start looking increasingly appealing to investors, an appeal that could eventually increase some capital outflows from equities and inflows into a safer bond space.

00:01:25: but on the other hand investors are warming too.

00:01:28: The idea we have now shifted towards is structurally higher inflation period Higher inflation regime meaning that yields can continue to rise better.

00:01:40: to wait today and see before moving capital into bonds, if the yields would be translates into a forward earning yield of about five point two percent today versus roughly four and half percent at the start off this year, around four.

00:02:19: And there is a good reason for that.

00:02:21: Earnings expectations have simply risen faster than stock prices, allowing the market to absorb higher bond yields through significant multiple compression.

00:02:31: now make no mistake That doesn't make S&P five hundred outright cheap because valuations are not roughly around their ten year average.

00:02:38: But it does mean that the market is considerably less stretched today then It was a year ago provided at those strong earnings.

00:02:45: expectations hold of course and here too The choice straight forward, right?

00:02:50: On one hand rising yields increase the bargain costs for companies waiting on their profit expectations or will start waiting on there.

00:02:57: profit expectations at some point.

00:02:58: At some level.

00:02:59: but on the other hand earnings expectations remain exceptionally strong.

00:03:04: they remained strong enough to counter a part of if not all rising cost worries among investors as such The unideal macroeconomic setup today.

00:03:13: But strong corporate results make investors hesitate between between taking more risk on their plate or just moving to safer bond space.

00:03:22: Now note that last week ended on a positive note for equities.

00:03:25: despite volatility in energy prices and rising yields, the week was actually quite from data event perspective but saw heavy set off across global bonds sharp rise in global yields with however unlimited impact as I said all major equity indices.

00:03:41: looking into these indices the S&P five hundred advanced one point twenty-one percent last week.

00:03:46: Costs were at a two point seventy percent while NASDAQ hundred rallied three point twenty five percent during the course of last week.

00:03:53: In Europe, less technology exposed stocks.

00:03:56: six-hundred eaked out the point fifty percent gain while Han Seng in Hong Kong underperformed.

00:04:02: This week, as the hawkish Fed and other central bank expectations gain field we have relatively busy economic calendar on our agendas with focus on US labor market and inflation numbers with PC metrics due to be released this week And another important test for AI trade with Macron's earnings.

00:04:21: So looking into what will happen next Tuesday The latest U.S.

00:04:26: Jolls report give us an update labor demand in the US and could influence expectations regarding how far the feds will need to go with this renewed tightening cycle.

00:04:37: On Wednesday, the latest U.S.-PC inflation figures so among the first-favorite inflation figures will be released alongside personal income, personal spending data ADP employment numbers & also final estimate of the second quarter GDP of United States.

00:04:53: And finally on Friday unemployment and wage growth data will be closely watched by the community of investors around.

00:05:10: But on the other hand, a part of inflation and pressures is also attributed today to strength in US economic growth.

00:05:30: As such, combination of strong jobs and hot inflation data could further boost Federal Reserve rate hike bets this week as the latter would push short-term yields even higher.

00:05:42: yet that U.S.

00:05:43: yield curve has been flattening since its latest Fed decision yields much more for borrowing costs of the companies and households than shorter ones.

00:05:58: And it affects the combination of hot inflation and strong jobs.

00:06:01: data could provide a solid basis to U.S.

00:06:03: dollar to break important technical levels against the U.N.

00:06:07: Sturgeon this week, potentially sending both the URD and cable into medium-term bearish consolidation zone and hence challenging positive trend that has been building since Donald Trump's return.

00:06:21: A softer inflation in jobs read on the other hand could cool the hawkish fed bets and give some relief to the payers, through the euro-dollar and cable near critical technical support levels.

00:06:34: Here we're near up.

00:06:35: preliminary September Inflation figures will be key following European Central Bank's latest rate hike decision and renewed pressure from energy prices in Euro area countries.

00:06:44: Needed inflation figures across the Euro Area Countries will certainly boost European central bank Hawks.

00:06:50: given that last week's PMI data is so suggestive still surprising the strong economic activity offering the European Central Bank room for further policy tightening, remember.

00:07:01: But whether a strong ECB rate hike expectations could translate into stronger Europe is yet to be seen as US dollar will likely remain in the driver's seat and change in FedExpectations will certainly continue to determine overall direction of travel for major FX pairs.

00:07:22: So that was the macroeconomics side on the corporate agenda, The highlight of this week is Micron's quarterly results are due after the bell on Wednesday!

00:07:31: The company self-guided for around USUSD fifty billion dollars in quarterly revenue an extraordinary eighty six percent gross margin That is simply beating.

00:08:02: consensus may not trigger a rally in migrants, so price posterior to earnings.

00:08:08: news that open AI posed the training of its most powerful AI models recently following a new incident will certainly not help into.

00:08:20: Abroadly speaking, we have seen a limited post earnings rally across the smiley conductor sector in this earning season.

00:08:27: TSMC, Samsung and AMD they all delivered strong numbers for their quarterly results and encouraging outlooks as well.

00:08:35: but investors increasingly question whether exceptional growth rates and margins were already priced-in As questions are obviously emerging around sustainability of AI spending Whether it's because models become too powerful and threat humanity.

00:08:52: or the financing of that extra AI spending becomes more expensive with higher yields, because natural resources such as water and electricity for example will be important barriers in the future to the AI expansion.

00:09:06: But whatever it is strong earnings could still help AI sucks resist pressure from high-year yields.

00:09:13: but anything less than absolutely fantastic from Mark on this week can eventually lead to disappointment among investors sectors, and justify some rotation away from the sector's previous winners into new ones.

00:09:31: Anyhow there will be plenty to watch this week but three questions will dominate.

00:09:36: Is inflation still strong enough to keep global central banks hawkish?

00:09:39: Can equity markets withstand higher rates and higher yields?

00:09:44: Can strong AI earnings continue to protect equity markets from the increasingly uncomfortable rise in global yields?

00:10:03: This episode of Market Talk has been helpful and it's been insightful to you, so please do not hesitate to leave your comments, reactions or questions below as usual.

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00:10:32: So I will meet again tomorrow, until then good day

00:10:51: trading!