A powerful fall in stock market indices caused by a “bubble” of mega-capitalization stocks is dragging the whole world down
Market Reviews
• The stock market was hit by a powerful correction, the largest since 2022. Only XLU and XLV increased in price, and XLE also remained at zero. Investors began to fear a recession. And the biggest sales hit came from AI and Growth theme stocks, which gained the most in 2024. The Magnificent Seven shares suffered their biggest decline since the launch of ChatGPT - their value fell by $1.7 trillion in 2 weeks.
After a weak auction of 5-year government bonds, long-term US government bonds also fell in price.
In the morning, gold is 2% cheaper. Bitcoin is again trampling 64 thousand.
The Japanese yen is already 152, although it met July at 162 yen per dollar.
• Prepare for the consequences of a mega-cap crash. A rethink of the earnings picture for hyped AI and Magnificent seven stocks has turned the run on Alphabet and Tesla into a rout on Wall Street. Add to this concerns about Chinese and global growth that have weighed on commodity-linked currencies, and risk aversion in the Chinese and Japanese markets remains ripe.
• The S&P 500 and Nasdaq fell to multi-week lows on Wednesday after Tesla <TSLA.O> and Alphabet <GOOGL.O> disappointed with weak earnings and saw their shares fall 12% and 5%, respectively. The tech-heavy Nasdaq <.IXIC> closed 3.6% lower and the S&P 500 <.SPX> fell 2.3%. Other mega-caps Apple (AAPL.O), Microsoft (MSFT.O), Amazon.com (AMZN.O), Meta Platforms (META.O) and Nvidia (NVDA.O) took the hit, as did companies small-cap <.RUT>, which have had a brief moment in the sun in recent weeks.
• The dollar fell to its lowest level in two months against the yen as short yen trades were unwinded ahead of next week's Bank of Japan meeting. This coincides with the July 30-31 FOMC meeting. While the Fed is unlikely to pull the trigger on easing this month, a scenario in which the yield differential soon narrows on both sides is already being set up.
• The global sell-off in stocks looks set to spread to Europe on Thursday, although the region may avoid turmoil in parts of Asia, where Japan's Nikkei fell 3% and Hong Kong's Hang Seng fell nearly 2%. The muted performance of European stocks compared to Wall Street and Japan over the past couple of months means there will be less jitters, which could lead to a smaller sell-off. But there are plenty of risks to prepare for as earnings season heats up. From drugmakers AstraZeneca and Sanofi to Stellantis and BAT, a wide range of industry giants are reporting Thursday. Nestle is one to watch, especially if you're a fan of KitKat or Smarties. The company could raise prices again ahead of Halloween and Christmas, ruling out reformulation as a way to cope with rising cocoa prices. Hermès also deserves attention after profits at LVMH and Gucci owner Kering were hit by weaker demand in China. Information on the general business environment in Europe will also be provided through surveys conducted in France, Germany and the UK.
• The Bank of Canada cut interest rates by 25 basis points from 4.75% to 4.50%. The Bank of Canada's rate easing cycle began in June with a 25 basis point cut. The market reaction is neutral - the market has already bet on a decline in the CAD exchange rate.
• Dudley fuels speculation about Fed rate cuts. "I've changed my mind... Waiting until September unnecessarily increases the risk of a recession." Former New York Federal Reserve Bank President Bill Dudley has moved from a hawk for higher rates in the long term to a dove for cutting rates now Yields
on two-year Treasury notes fell to their lowest levels since February amid speculation that Fed officials will soon cut US interest rates.
• Ferrari (RACE) will begin accepting crypto payments for cars in Europe. The company says this is a response to requests from the market and dealers, since many of the sports car manufacturer's clients invest in cryptocurrencies. In the United States, such a service was launched back in October 2023. Payments are accepted in BTC, ETH and USDC.
• YouTube ad sales growth missed expectations: $8.7 billion vs. $8.9 billion forecast. Google has largely reversed the digital advertising slump that began in 2022 amid economic uncertainty, rising interest rates and inflation. Alphabet's revenue increased year-over-year thanks to Google Search, as well as Google Cloud, which topped $10 billion in quarterly revenue and $1 billion in operating profit for the first time.
• Reuters cited four sources familiar with the Bank of Japan's position as saying the Japanese central bank is likely to discuss raising interest rates at its meeting next week.
• US high-grade bond sales in July were the largest since 2017 - Bloomberg. Blue-chip companies sold bonds this month at the fastest pace in all of July in seven years, capitalizing on strong demand from investors seeking to lock in high yields before the start of next year.
• Kering reports second-quarter sales fall 11%, forecasts weak second half. Kering reported a larger-than-expected fall in second-quarter sales and forecast a weak second half as the French luxury goods group tries to revive its core Gucci brand.
• Oil rises as US inventories fall to lowest level since February - Bloomberg. Oil rose, recovering from a string of losses after a government report showed U.S. crude inventories fell to their lowest level since February.
• Hot AI Trading Enters Danger Zone: Morgan Stanley Chief Investment Officer
No stock goes up forever, and that includes popular AI names.
• Universal Music beat earnings estimates in the second quarter. Universal Music Group (UMG.AS), the label behind Taylor Swift, BTS and Drake, posted better-than-expected second-quarter sales on Wednesday, driven by growth across all segments.
• Investors have focused on the Solana ETF following its launch for Bitcoin and Ethereum. Templton said the Solana ETF will be an "exciting" and "important" development.
• Analysis - U.S. oil producers cut prices as mega-giants cut customer base - Reuters
A wave of oil-producing mega-giants is forcing U.S. drilling and fracking services companies to cut prices, merge or risk bankruptcy as they compete for Fewer and fewer clients.
- Stocks after reports at the exchange session
ENPH +13%
NEE +5%
T +5%
TMO +4%
STX +4%
BSX -1%
V -4%
GOOG -5%
TSLA -12% - worst day since 2020
- Shares after post-market reports
NOW +7% - the company is successfully monetizing its AI services to businesses.
KLAC +5%
CMG +4%
IBM +3%
F -12%
Key events that could give more direction to markets on Thursday:
- South Korean GDP (2Q growth)
- Japan Services Producer Price Index (June)
- US GDP (2nd Quarter, Advance)
- The three-day Bitcoin 2024 conference will feature speakers from Donald Trump, Robert Kennedy Jr., ARK Invest's Cathie Wood, MicroStrategy (MSTR) Executive Chairman Michael Saylor, Edward Snowden, Vivek Ramaswamy and Anthony Scaramucci. Companies taking part include Riot Platforms (RIOT), Gryphon Digital Mining (GRYP) and TeraWulf (WULF). Donald Trump is scheduled to speak on July 27.
- US Durable Goods Orders Report for June.
- Reports ABBV, AZN, UNPO, HON, RTX, SNY
The global economy is showing signs of weakness
• French service sector activity has returned to growth, albeit modestly. This is probably partly due to the Paris Olympics.
In the US, manufacturing is slipping back into contraction while the services sector is gaining strength.
Part of the decline in production was due to staff shortages, so may prove temporary. But both manufacturers and service providers report growing uncertainty around the election, which is holding back investment and hiring.
- France
Composite PMI rose from 48.8 to 49.5 (expected 48.9)
Service PME rose from 49.6 to 50.7 (49.7)
Manufacturing PMI fell from 45.4 to 44.1 (45)
- Germany
Composite PMI fell from 50.4 to 48.7 (expected 50.7)
Service PME fell from 53.1 to 52.0 (53.2)
Manufacturing PMI fell from 43.5 to 42.6 (44.1)
- UK
Composite PMI rose from 52.3 to 52.7 (expected 52.6)
Service PME rose from 52.1 to 52.4 (52.5)
- Eurozone
Composite PMI fell from 50.9 to 50.1 (expected 51.1)
Service PME fell from 52.8 to 51.9 (52.9)
Manufacturing PMI fell from 45.8 to 45.6 (46.0)
- USA
Composite PMI increased from 54.8 to 55.0
Service PME increased from 55.3 to 56.0 (54.7)
Manufacturing PMI fell from 51.6 to 49.5 (51.7 )
New home sales in the US fell 0.6% m/m to a 7-month low
Fundamental Reviews
• The November US elections pose risks for Chinese companies. Vice President Kamala Harris has become the Democratic presidential nominee after President Joe Biden, 81, completed his re-election bid on Sunday. It is unclear what China policy she will choose, but she and her Republican rival Donald Trump are expected to take a tough stance on tariffs and Taiwan, as Biden has done. The Democratic National Committee's Rules Committee on Wednesday agreed on a plan to formally nominate Harris as early as Aug. 1 — ahead of the party's Aug. 19-22 convention in Chicago — with Harris choosing a running mate by Aug. 7.
• Trump-Harris debate Sept. 10 on ABC News - Politico. Kamala Harris carries the torch and the burden of Bidenomics - The Economist. She intends to develop the president's social assistance program while avoiding accusations of inflation. Barack Obama will support Kamala Harris in the presidential election - McFaul.
• The Polish prosecutor's office is checking 75 companies due to fraud with Ukrainian grain. Suspicions have already been brought against seventeen people.
Companies registered in Poland are under investigation. There are no Ukrainian companies among them.
• France is faced with a problem: many tickets for the 2024 Olympics remain unclaimed - FT. "More than a quarter of a million unclaimed tickets remain in Paris, which means there will be many empty seats at Friday's opening ceremony," the newspaper reported. The FT also writes that there is a lack of demand in the secondary market.
• The US Treasury ordered financial institutions to report the presence of Russian assets. Such an obligation is provided for as part of the implementation of the so-called REPO Law for Ukrainians.
• Israeli Prime Minister Netanyahu addressed the US Congress. Israel proposes to the United States to create an analogue of NATO in the Middle East against the “Iranian threat.”
• E-sports is now officially an Olympic sport, - IOC decision. The first Games will take place in Saudi Arabia in 2025.
July 21 was the world's hottest day on record - Reuters.
• “As a consequence of the increase in greenhouse gases in the atmosphere, we will definitely see new records that will be broken in the coming months and years,” experts say.
• Super Typhoon Gemi shuts down Taiwan and sets its sights on China - Bloomberg. Taiwan's capital Taipei is bracing for a second day of closure as Super Typhoon Gemi approaches the densely populated island, potentially causing damages and losses of about $30 billion.
• The President of Mexico said that Musk was not serious about a possible refusal to invest in Mexico. Mexican President Andrés Manuel López Obrador said Wednesday that Elon Musk's comment that Tesla would not invest in Mexico "is not serious." On Tuesday, Musk said the electric vehicle maker had suspended plans for a plant in Mexico.
• WSJ: Venezuela's Maduro tries to make friends with US investors during election overhaul: "We guarantee stability, legal security, peace and mutually beneficial relations." Some U.S. oil executives and Wall Street lenders are quietly backing the president; opponents say democracy is needed to restore the rule of law.
Maduro, although deeply unpopular in the polls, holds every lever of power, from the courts to the army. If the opposition wins, U.S. executives say, Venezuela risks plunging into chaos, dashing hopes of the country's restoration as a major oil supplier to the United States. Presidential elections in Venezuela will take place on Sunday.