US Equities

The Fed left interest rate unchanged in September’s meeting but signaled it still expects a rate hike in December. It also confirmed to begin its balance sheet reduction in October in a gradual and predictable manner. US congress approved to extend the debt ceiling and provide government funding until December. In addition, Trump unveiled a tax reform plan, calling for lowering the corporate rate from 35% to 20%. On the economic front, data were mixed and some of them are likely disrupted by negative effects of Hurricane. Non-farm payrolls increased by 156,000 in August, below a downwardly revised 189,000 in July and also market expectations. CPI rose 1.9% year-on-year in August, above July’s 1.7%, but it was due to rising shelter and gasoline cost as Hurricane Harvey shut down refineries along the Gulf coast. Also, retail sales unexpectedly fell 0.2% month-on-month in August, from July’s 0.3% gain, as auto sales declined most likely due to the Hurricane. On the other hand, ISM Manufacturing PMI rose from 56.3 in July to 58.8 in August, the highest reading since April 2011, while housing starts slid 0.8% from July, marking the 2nd straight month of decline.

US equities rose to record high amid the declined concerns over hurricane and better sentiment boosted by Trump’s tax reform plan during the month. The details of balance sheet normalization gave no surprise to markets and its impact should be moderate in the beginning, due to the Fed’s gradual approach. However, the Fed’s rising expectations for the third rate hike this year was slightly beyond expectations. US dollar rebounded from as low as 91 level to over 93 amid the Fed’s hawkish stance and optimism over Trump’s tax plan. Going forward, the geopolitical tensions should continue to bring market volatility to US equities. Meanwhile, we should closely monitor the effect of balance sheet normalization under the backdrop of high valuation in US stocks. We continue to maintain SLIGHTLY NEGATIVE outlook.

Provided by BCT Financial Limited