Market Review
The US dollar index rebounded after falling on Monday. On "Black Monday", the US dollar index fell to nearly 102, and then began to rebound during the US trading session, and then erased the losses on Monday. The US Treasury yield ended its inversion, and the 10-year US Treasury yield erased the decline since last week's non-farm payroll data, and once returned to 4%. Spot gold fell on Monday along with the stock market, falling nearly $100 from its intraday high, and then rebounded. The decline of the US dollar on Thursday pushed gold to stop its five-day losing streak.
As for non-US currencies, the Japanese yen is seen as the "culprit" of the global stock market crash this week. After a sharp drop in the US dollar against the Japanese yen, it began to rebound on Tuesday as Japanese central bank officials turned dovish, ending a five-day losing streak. It is reported that more than two-thirds of the world's carry trades based on the Japanese yen have been closed.
Dragged down by far-right riots and the prospect of tax increases, the pound retreated from a one-year high against the dollar, becoming the weakest performing G20 currency in August, and fell to its lowest level since early July during the week; the euro rose above 1.10 against the dollar during the session, the first time since December last year; the Australian dollar fell to its lowest level this year against the dollar during Monday's session, and then recorded four consecutive gains. The MSCI Emerging Markets Currency Index rose to its highest level since April 2022.
In terms of international oil prices, both WTI crude oil and Brent crude oil recorded increases this week. On the news front, there is still uncertainty about Iran's potential retaliation against Israel, the decline in US crude oil inventories exceeded expectations, and concerns about economic recession have eased. In addition, production disruptions at Libyan oil fields and Ukraine's cross-border attacks on Russia have further exacerbated supply concerns.
Events of the week
1. Has the global stock market “massacre” begun or ended?
On August 5, the global stock market suffered a "Black Monday". Analysts generally believe that the appreciation of the yen led to the collapse of carry trades, non-agricultural data that was lower than expected triggered recession concerns, Buffett's large-scale reduction of holdings and switching to cash, and the deterioration of sentiment led to a rush of funds to leave the market, which simultaneously led to this "crash".
Asia-Pacific stock markets led the decline that day, with the Nikkei 225 index triggering the circuit breaker mechanism twice and eventually closing down 12.40%, wiping out all gains this year and the largest single-day drop in history. South Korea's benchmark stock index triggered a circuit breaker during the day and fell 8.77% throughout the day. European and American stock markets also suffered a sell-off, and the "Big Seven" technology companies were hit particularly hard, with their market value evaporating by more than $650 billion. The major stock indices in the United Kingdom, Germany, France, Italy, Spain and other countries all suffered heavy losses.
On Tuesday, the decline of global stock markets reversed, with the Nikkei 225 rebounding by more than 10% at one point, triggering circuit breakers upward several times. On Wednesday, Shinichi Uchida, deputy governor of the Bank of Japan, said for the first time after "Black Monday" that the Bank of Japan would not raise interest rates if the market was unstable. The summary of the opinions of the Bank of Japan's review committee also showed that a small interest rate hike would not have a tightening effect. These remarks calmed uneasy investors, and Asian stock markets also rebounded, but the overall volatility was still large.
Funds are showing signs of bottom-fishing, but many investment banks are still warning of market risks. Data from Goldman Sachs' institutional brokerage department showed that hedge funds entered the market to bottom-fish after the US stock market plummeted, buying technology stocks in large quantities, and the scale of increased holdings was the largest since June. According to Goldman Sachs' analysis of data from the past 40 years, it is usually profitable to buy after the S&P 500 index falls by 5%. However, HSBC said that the market is in a "sell-off" mode, which usually lasts for a month, with the S&P 500 index falling by an average of 10%.
2. The Federal Reserve’s hawkish approach “reversely” manages expectations!
Driven by last week's weak non-farm payrolls data, market concerns about a U.S. recession and a stock market crash, the market once believed that the Fed's rate cut was too late and an emergency rescue was needed. However, all Fed officials tried to conduct "reverse" expectation management.
Chicago Fed President Goolsbee said it is not the Fed's job to react to one month's employment data and that the Fed's policy mission has nothing to do with the stock market. When asked about the emergency rate cut, Goolsbee said options including rate hikes and rate cuts have always been on the table.
San Francisco Fed President Mary Daly pointed out that she is open to a rate cut in September. She has not seen any deterioration in employment so far. The July employment report reflected temporary layoffs and the impact of hurricanes. It would be easy to make mistakes if she only focused on one point of data. The job market is slowing down, but it will not fall off a cliff.
Richmond Fed President Barkin said the Fed "has time" to assess economic performance and expects inflation to continue to fall. Kansas Fed President Schmid suggested he is not ready to support a rate cut because inflation is above target and the job market has cooled but is still healthy.
Goldman Sachs raised the probability of a U.S. recession in the next 12 months to 25%, but its CEO expects the Fed will not cut interest rates before September and that the U.S. economy will avoid a recession. JPMorgan Chase raised the probability of a U.S. recession by the end of this year to 35%, and its CEO Jamie Dimon is skeptical about whether inflation can return to the Fed's 2% target.
The founder of Sam's Rule believes that the US economy has not yet fallen into recession, but it is "uncomfortably close to recession" and it is time for the Federal Reserve to cut interest rates. Economist Nouriel Roubini, known as "Dr. Doom," said he did not see signs of a hard landing for the US economy or a sharp interest rate cut by the Federal Reserve.
The Atlanta Fed's GDPNow model this week still raised the third-quarter GDP growth rate of the United States to 2.9%, which was previously expected to be 2.5%. The latest data on the job market also calmed the market's nervousness. The number of first-time unemployment claims in the United States last week fell by the largest amount in nearly a year, which may indicate that the weak employment data last Friday may be a one-off phenomenon, partially alleviating concerns about the job market cooling too quickly.
Although Monday's plunge did not turn into a liquidity crisis, data from the New York Fed this week showed that the use of the Fed's overnight reverse repurchase agreement tool was only US$291.958 billion, falling for four consecutive days and hitting the lowest level in more than three years for two consecutive days. Analysts warned that this shows that excess liquidity has been withdrawn and bank reserves are not as abundant as policymakers think. The Fed may be about to end its balance sheet reduction, but the details depend on the speed of interest rate cuts and pressure in the funding market.
3. Iran may reassess whether to retaliate against Israel
Iran said it would retaliate against Israel for the murder of Hamas political leader Haniyeh, but hoped to avoid a full-scale war. Geopolitical observers have been speculating on the means and targets of its retaliation, but Iran said it was waging a psychological warfare against Israel and had not yet taken military action.
U.S. officials said President Biden was told by his national security team that it is still unclear when Iran and Hezbollah might launch an attack on Israel, as well as the specific details of that attack. It is reported that about a dozen F/A-18 Hornet fighter-attack aircraft have arrived at a secret base in the Middle East to help protect Israeli and U.S. troops from possible attacks.
Some US officials said Iran may reassess whether to launch a military attack on Israel. However, other Iranian proxies in the Middle East may take action. Sources said that Lebanon's Hezbollah may launch a strike against Israel alone. According to reports, Yemen's Houthi armed forces warned that their response to Israel's attack is "underway" and they are making "important plans" to strike Israel.
In addition, Hamas announced this week that Yahya Sinwar would replace Haniyeh, who was killed in an attack, as the new leader of the Political Bureau. Sinwar was recognized by Israel as the second leader of Hamas. He has been active in Gaza for a long time and actually controls the armed forces of the organization.
4. US election: Harris finalizes running mate, Trump criticizes the Federal Reserve again
Harris, the Democratic presidential candidate and vice president, has chosen Minnesota Governor Tim Waltz as her running mate, hoping to win votes from progressives, Midwestern moderates and Rust Belt states. Waltz worked as an English diplomat at Foshan No. 1 Middle School in Guangdong Province from 1989 to 1990.
Republican presidential candidate Trump has offered to hold three debates with Democratic presidential candidate Harris in September. According to reports, the two have agreed to hold a debate hosted by ABC on September 10. National polls in early August showed that Harris was ahead of Trump with 51% to 48%. The Cook Political Report showed that the election situation in three swing states, including Arizona, changed from "Republican advantage" to "too close to a tie."
Trump continued to publicly criticize the Fed this week, saying the president should have a say over interest rates and monetary policy, reigniting market concerns about the central bank's independence. Previously, Powell has repeatedly stressed that the Fed's interest rate decisions are not influenced by political factors.
5. Ukraine launches the strongest counterattack, and European natural gas hits a new high
This week, Ukraine launched its strongest counterattack in Russia since the outbreak of the Russian-Ukrainian conflict in 2022. The Chief of the General Staff of the Russian Federation Armed Forces said that as many as 1,000 Ukrainian soldiers participated in the attack on Kursk, but Ukraine's offensive in the Kursk region has been contained, but Russia still declared a state of emergency in Kursk Oblast from Wednesday. Putin accused Ukraine of attacking Kursk, Russia, as a "major provocation."
The Russian Ministry of Defense said that Ukraine launched the offensive in the early morning of the 6th, and the fighting continued until late at night on the 7th. The Ukrainian army allegedly occupied a natural gas transfer station in the Russian town of Sudzha. Since this is the last operational transfer station for Russian natural gas to be transported to Europe via Ukraine, European natural gas futures hit a new high this year. The United States said that it was not aware of the Ukrainian army's combat plan in advance.
6. China’s central bank stopped increasing its gold holdings for three consecutive months
The latest data released on the official website of the People's Bank of China shows that as of the end of July 2024, my country's central bank gold reserves were 72.8 million ounces (about 2,264.33 tons), the same as last month. This is the third consecutive month that the People's Bank of China has stopped increasing its gold reserves.
The World Gold Council pointed out that global gold ETFs experienced their strongest month since April 2022, attracting $3.7 billion in July, the third consecutive month of inflows; all regions saw inflows led by Western funds. In August, seasonal factors will be favorable for gold, but headwinds from the Jackson Hole conference, the US election and the performance of technology companies may be strong.
7. The Reserve Bank of Australia remains on hold and raises its economic and inflation expectations
Earlier this week, the Reserve Bank of Australia kept the cash rate unchanged at a 12-year high of 4.35% and raised its expectations for inflation and economic growth in the coming period.
RBA Governor Bullock said the RBA remains "vigilant" to the upside risks of inflation and will not hesitate to raise interest rates further if necessary. She also said the committee will "explicitly consider" whether it is necessary to raise interest rates again to ensure that inflation continues to fall within a reasonable time frame, and the decision to keep interest rates unchanged this week will still help the RBA achieve its mission of maintaining employment growth while cooling inflation.
8. Google loses antitrust case and says it will appeal
A federal judge ruled on Monday that Google's efforts to maintain a monopoly in online search were illegal and that it abused its dominance in the search business. The Justice Department and states sued Google, accusing it of illegally consolidating its dominance in part by paying billions of dollars a year to other companies such as Apple and Samsung to automatically process search queries on their smartphones and web browsers. Google's parent company Alphabet said it plans to appeal.
9. Apple will launch a new version of Mac mini
Apple is reportedly planning to launch a new version of the Mac mini, which will be its smallest desktop computer ever, as part of a general overhaul of its Mac product line, with a focus on the introduction of AI chips. The new model will be launched later this year and will be the first major design change since Jobs redesigned the Mac mini in 2010, according to people familiar with the matter. The device will be much smaller than its predecessor, close to the size of an Apple TV set-top box, the people said.
According to Berkshire Hathaway's quarterly report released last Saturday, its holdings in Apple fell from 789 million shares in the first quarter to about 400 million shares, a drop of nearly 50%.
The article is forwarded from: Jinshi Data