Barclays says cooling U.S. data could stabilize tech stocks

Investing.com -- Barclays told investors in a note on Friday that softer U.S. growth and inflation data are easing pressure on the Federal Reserve to tighten further, with a shift that should cap yields and the dollar while helping steady technology and momentum stocks.

"Cooling US activity and inflation data mean the Fed has no need to rush to hike," strategists led by Emmanuel Cau wrote, adding that this should also "stabilise further momentum/tech."

Global equities have climbed to fresh highs on the back of the data, the bank said. Payrolls surprised on the soft side, though Barclays noted the reading was partly explained by distortions, while this week's consumer and producer price figures suggested inflationary pressures are no longer accelerating.

Taken together, the bank said the data implies growth is easing from very strong levels and inflation is moderating.

Barclays described the shift as supportive, particularly for fixed income. Bond yields have nevertheless stayed close to recent highs, which the bank attributed to volatile oil prices and rates investors waiting for the Jackson Hole symposium later this month.

Reflecting the changing backdrop, Barclays said its fixed income analysts have tactically closed a recommendation to pay 5y5y SOFR.

The bank added that a less aggressive Fed would make it easier for the Bank of Japan to continue normalizing policy at a measured pace while retaining scope to support the yen, easing carry unwind risks.

Barclays added that the moderation should support duration-sensitive equities in the semiconductor and artificial intelligence complex, where it is beginning to see signs of stabilization after a sharp two-month drawdown.

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