Market Review

The overall trend of the US dollar index this week was a decline followed by an increase. On Tuesday, the US dollar index plunged after the PPI data boosted the Fed's expectations of a rate cut; on Wednesday, the CPI data was lower than expected, but the market still lowered its expectations for the Fed's rate cut, and the US dollar index reversed in a V-shape, recovering all the losses during the day; on Thursday, after the release of retail sales data, the US dollar rose strongly and once returned to the 103 mark. On Friday, the total number of new housing starts in the United States in July hit a new low since May 2020, and the US dollar fell.

Spot gold rose at the beginning of the week driven by the inflow of safe-haven funds, then fluctuated and continued to hover near the historical high. After the "horrible data" on Thursday, it plunged more than $20 and then rebounded. The US real estate market data released on Friday was lower than expected, and the US dollar and US bond yields both fell. Spot gold hit a new high, once reaching $2,492 per ounce, surpassing the record of $2,483.73 per ounce set last month. It fell slightly as of press time.

As for non-US currencies, USD/JPY rebounded this week, rising for the second consecutive week. GBP/USD stopped falling for four consecutive weeks; EUR/USD rose and then fell, reaching a high of 1.1047, a new high for the year; AUD/USD rebounded for the second consecutive week, while USD/CAD fell for the second consecutive week.

In terms of international oil prices, both WTI crude oil and Brent crude oil rose first and then fell. The reasons for the rise at the beginning of the week included Iran's imminent retaliation against Israel, which triggered concerns about crude oil supply disruptions. At the same time, economic data eased concerns about a US recession and supported confidence in the outlook for crude oil demand. However, the upward trend failed to maintain and may end the week with a decline.

In the stock market, the Nikkei 225 index rose strongly by 3.6% on Friday, returning above 38,000 points. It has rebounded more than 20% from the low hit on "Black Monday" on August 5, entering a technical bull market, and has accumulated an increase of nearly 9% this week.

Events of the week

1. CPI returns to 2 digits, and the market re-evaluates the expectation of a 50 basis point rate cut

This week's inflation, retail sales and high-frequency employment data all reduced the need for the Federal Reserve to cut interest rates by 50 basis points in September.

Data released on Wednesday showed that the U.S. unadjusted CPI annual rate in July was 2.9%, the first time it has been below 3.0% since March 2021, lower than general expectations; the unadjusted core CPI annual rate was 3.2%, still the lowest growth rate since the beginning of 2021, and the monthly rate was 0.2%. Previous PPI data showed that inflation in the consumer upstream continued to decline.

After the data was released, futures trading showed that traders believed that the probability of the Fed cutting interest rates by 25 basis points at the September meeting was 56.5%, and the probability of a 50 basis point cut was reduced to 43.5%. As the rent sub-item in the CPI accelerated to 0.36% month-on-month, the market believed that inflation was more difficult than the Fed expected, so it re-evaluated the possibility of a 50 basis point cut in September.

Thursday's retail sales data further weakened market expectations for a 50 basis point rate cut, with interest rate futures pricing in a reduction in the Fed's rate cut to 93 basis points this year, and the probability of a 50 basis point cut in September falling further to 27%.

Data from the U.S. Department of Commerce showed that after seasonal adjustment, retail sales last month increased by 1% from the previous month, a strong rebound from June and significantly exceeding market expectations, indicating that despite rising borrowing costs, a cooling labor market and an uncertain economic outlook, consumer spending remains strong, which is the biggest driver of the U.S. economy. The number of initial jobless claims in the United States last week, released on the same day, fell for the second consecutive week, reaching the lowest level since July.

The Jackson Hole Economic Symposium will be held next week, and there have been relatively few public speeches by Fed officials this week. Atlanta Fed President Bostic said the Fed cannot delay easing policy and a rate cut is coming, but still hopes to see more data. Chicago Fed President Goolsbee said that the current interest rate level is "very restrictive" and he is increasingly worried about the labor market rather than inflation, given the recent progress in price pressures and disappointing employment data. St. Louis Fed President Musalem believes that recent data has increased confidence in the decline in inflation, and the time for a change in policy interest rates may be coming soon, and the data does not support the view of a recession.

Powell will deliver a speech on the economic outlook at the economic seminar next Friday, and the market is awaiting his latest remarks on the prospects for rate cuts.

2. Whether Iran will take action depends on the outcome of the Gaza ceasefire negotiations

Both Israeli intelligence and the United States have assessed that Iran has decided to attack Israel directly and is expected to do so this week. Israel has also conveyed to the United States and several European countries in recent days that any direct attack by Iran on Israel, even without any casualties, will be responded to by an attack on Iranian territory. The White House has warned that Iran could launch an attack with little to no warning.

However, Iran has not made any moves this week. Analysts believe that if the hostage release and ceasefire agreement in Gaza are successful, Iran may not retaliate directly against Israel. Gaza ceasefire negotiations have been launched in Doha, and Hamas representatives will not attend the meeting. It is reported that the differences between the parties are still large and the negotiations will continue on Friday. Hamas officials bluntly stated that they will not negotiate any new conditions for the Gaza ceasefire agreement.

Senior Israeli security officials have reportedly warned that Iranian and Hezbollah attacks on Israel could take the form of assassinations of senior officials, potentially targeting ministers, parliamentarians, defense officers or high-ranking officials of the Shin Bet or Mossad, rather than launching missiles and drones.

Amid heightened tensions in the Middle East and international pressure on Iran, Iran's central bank and several other banks suffered a major cyberattack this week, causing widespread disruptions in the country's banking system. Initial assessments suggest this could be one of the largest cyberattacks on Iran's national infrastructure.

3. Progress of the Russia-Ukraine conflict: Ukraine's counterattack enters its second week

Ukraine's counterattack against Russia has entered its second week. The Ukrainian top commander confirmed that the Ukrainian army has advanced 35 kilometers in Russia's Kursk region, controlling 1,150 square kilometers of land and 82 settlements, and has established a military command. Sbelgorod Oblast became the second region to declare a state of emergency. Russia reportedly withdrew some of its military forces from Ukraine to deal with the counterattack.

Canada and the United Kingdom said they would allow Ukraine to use the military equipment they provided in Russia. Kremlin aide Patrushev said Ukraine's attack on Kursk was planned with the participation of NATO and Western agents, and the US statement that it was not involved in the Kursk attack was false.

In addition, according to the Financial Times, Ukraine said that the country has begun negotiations with Russia on the exchange of prisoners of war captured by Kiev.

4. Fumio Kishida withdraws from the election: Uncertainty permeates Japanese politics

Japanese Prime Minister Fumio Kishida said on Wednesday that he would not seek to stay in office and that Japan would have a new leader this fall. Kishida said a new image of the Liberal Democratic Party needs to be presented in the next leadership election and he will fully support the new leader. "I need to resign first. My withdrawal is the best way to show that the Liberal Democratic Party is changing. This decision was made with the best interests of the public in mind. A series of scandals, including the 'black gold' incident, have eroded public trust. As the leader of the Liberal Democratic Party, I will not hesitate to take responsibility."

Among Kishida's potential successors, 67-year-old Ishiba Shigeru is leading in the polls. He is a former defense minister and has participated in four LDP leadership elections. He has not yet officially announced his candidacy, but he may find it difficult to win the support of LDP lawmakers. According to his latest remarks, Ishiba Shigeru approves of the Bank of Japan's policy of gradually raising interest rates, believing that this will help lower prices and improve industrial competitiveness.

Other candidates include Taro Kono, 61, digital minister, and Toshimitsu Motegi, 68, a former foreign minister. Meanwhile, some in the party are calling for a younger candidate, such as Shinjiro Koizumi, 43, a former environment minister.

5. The latest holdings of Wall Street institutions revealed

BlackRock increased its holdings of Nvidia and ExxonMobil in Q2: In the second quarter, asset management giant BlackRock increased its holdings of Nvidia by 16.88 million shares, Apple by 9.69 million shares, Microsoft by nearly 9 million shares, and ExxonMobil by 30 million shares; it reduced its holdings of Broadcom and Berkshire Hathaway. As of the end of the second quarter, BlackRock reported a holding value of $4.42 trillion, up from $4.3 trillion the previous time.

Buffett's Apple share dropped to 30%, and he built up a position in beauty stocks: Berkshire Hathaway, owned by Buffett, increased its holdings of Occidental Petroleum and Chubb in the second quarter; it reduced its holdings of Apple by 389 million shares, reducing its holdings to 30.52%, and also reduced its holdings of Chevron and T-Mobile; it liquidated its positions in Snowflake and Paramount Universal; and built positions in beauty companies Ulta Beauty and Heiko Aviation. As of the end of the second quarter, the total market value of Berkshire Hathaway's holdings dropped from US$332 billion to US$280 billion.

Hillhouse Capital HHLR significantly increased its holdings of Alibaba in the second quarter: HHLR Advisors, a subsidiary of Hillhouse Capital, held a total of 78 U.S. stocks in the second quarter, with a total market value of approximately US$4.054 billion; among them, it increased its holdings of Alibaba by 5.24 million shares, making it the third largest holding, and increased its holdings of Chinese stocks such as Vipshop, NetEase, and Ctrip, as well as technology stocks such as Apple, Nvidia, Google, and META; it reduced its holdings of Pinduoduo by 2.9 million shares, but it was still its number one holding, and reduced its holdings of Beike, Amazon, and Microsoft.

Bridgewater cuts Apple holdings in the second quarter and reduces Nvidia holdings: Bridgewater Fund reduced its holdings of Nvidia by 489,000 shares, Google by 828,000 shares, and Pinduoduo by 289,000 shares in the second quarter; it increased its holdings of Amazon by 1.59 million shares and Microsoft by 510,000 shares, by 152% and 88% respectively; it sold nearly 75% of its Apple holdings to 469,000 shares. As of the end of the second quarter, the total market value of Bridgewater's US stock holdings was US$19.2 billion, a decrease of US$600 million from the previous quarter.

6. Many first-tier cities are about to purchase and store commercial housing

According to reports, several first-tier cities are expected to issue relevant policy documents to purchase and store commercial housing; they will follow the idea of ​​"government-led, market-oriented operation" to order according to demand and reasonably determine the source of housing to be purchased. Among them, Nanjing, Hangzhou, Tianjin, Chengdu, Qingdao, Guangzhou and other cities are reportedly studying and formulating relevant work plans and policy documents.

7. The bond market has experienced a deep correction, but analysts say there is no need for panic redemption

On August 12, the bond market experienced a deep correction, with all-term interest rate bonds yielding higher yields. Analysts believe that the pressure on the treasury bond market comes mainly from two aspects: first, regulation has affected the bullish atmosphere; second, the increase in government bond issuance has offset the expected support for the bond market from loose monetary policy to a certain extent.

The front-page commentary of the Bond Times pointed out that in the short term, the return on bond investment in the second half of the year may be difficult to meet investors' high expectations; in the medium and long term, it is difficult for domestic interest rates to rise significantly under the loose monetary policy, and the risk of a sharp drop in the bond market is relatively small, and investors do not need to panic and redeem because of short-term fluctuations. The Financial Times, the media under the central bank, issued an article stating that it will resolutely crack down on illegal acts that disrupt the bond market order.

8. Securities Times front page: It’s time to let go of the belief in the rigid redemption of convertible bonds of state-owned enterprises

Lingnan shares announced on Wednesday that the "Lingnan convertible bond" could not be redeemed on schedule, becoming the first state-owned enterprise convertible bond default in the country, which also means that the market's belief in the rigid redemption of state-owned assets will be broken. The CSI convertible bond index recorded its largest single-day drop in more than half a year on Friday. Among the more than 500 convertible bonds in the market, less than 30 rose.

An article in Securities Times stated that the original intention of the policy to break the rigid guarantee is to use the power of the market, guided by "risk-return", to match funds to the most efficient places.

9. Musk interviews Trump

This week, Trump was interviewed by Musk and live-streamed on Platform X. However, the live broadcast was delayed for more than 40 minutes before it started. Musk said Platform X seemed to have been hit by a large-scale DDoS (distributed denial of service) attack. More than 1 million people were listening online when the conversation officially began. Here are the highlights of their speeches:

In the interview, Trump stated that Biden was forced to withdraw from the US presidential election due to a "coup"; if elected president, the United States will have the largest deportation (immigrants) in history; people have been completely destroyed by inflation, and prices must be brought down; corporate incentives will be provided to allow them to come to the United States instead of leaving the United States; after Musk supported his presidential campaign, he "had no choice" but to switch to electric vehicles, but opposed a large-scale shift; Biden's suggestion that Ukraine should join the NATO alliance was "stupid talk", and his relationship with Putin was fruitful during his tenure in the White House, and he hopes to maintain a good relationship during his second term.

Musk offered to play a role in helping cut federal spending in a second Trump administration and called for the establishment of a government committee. He also said the oil and gas industry should not be denigrated, as the economy depends on these energies, but hoped that the United States would move to a "more sustainable economy."

10. New Zealand Reserve Bank unexpectedly cuts interest rates

On August 14, the Reserve Bank of New Zealand unexpectedly cut interest rates by 25 basis points, from 5.5% to 5.25%, the first rate cut since March 2020, and market expectations remained unchanged. Previously, the Reserve Bank of New Zealand had chosen to keep interest rates unchanged for eight consecutive times.

The Reserve Bank said monetary policy will still need to remain restrictive for some time. The committee agreed that there is room to ease the degree of monetary policy restrictions. The bank expects the average official cash rate to be 4.92% in the fourth quarter of 2024 and 4.62% in the first quarter of 2025. It is expected that the average official cash rate will fall by 101 basis points by mid-2025.

11. WHO declares monkeypox a "public health emergency of international concern"

The World Health Organization announced on Wednesday that the spread of monkeypox in several African countries constitutes a public health emergency of international concern, the second such declaration issued by the organization in the past two years in response to the spread of the virus. my country's General Administration of Customs subsequently issued a notice on preventing the spread of monkeypox to my country, which is valid for 6 months. On Friday, the A-share market continued to rise in the afternoon, with Haichen Pharmaceutical and Asia Pacific Pharmaceutical hitting the daily limit for two consecutive days, and Tojing Life, Puli Pharmaceutical, and Hopeful China hitting the daily limit. Hong Kong-listed pharmaceutical distribution stocks rebounded sharply.

Article forwarded from: Jinshi Data