How long will the stock market crisis and alarming signals from the global financial system last?
Stock reviews
• Strong gains lifted Japan's Nikkei and Asian stock markets, with European and US stock futures indicating they too would follow suit. Given the confluence of factors that led to the sell-off—Japanese interest rate hikes, the winding down of yen-financed global trade, declining U.S. employment, and tensions in the Middle East—ironically, all it took was a reassuring message from central bank officials.
• The Nikkei index is up 9%, nearly reversing Monday's 12.4% fall that sent it into bear market territory. Wall Street looks more resilient, with S&P 500 futures jumping 1.5%. The three-day rout cost the S&P 500 8% of its value. Europe's STOXX 600 index appears set to rise after it recorded its steepest three-day fall since June 2022 on Monday, closing below the key 500-point mark for the second day in a row.
• Japan always came back quickly after selling out. With concerns lingering over inflated tech earnings and the view that the Fed may have kept rates too high for too long, the carnage may not be over yet. Add to this the continued significant overinvestment in yen around the world, not only in US stocks but also in high-yield emerging market bonds such as the Indian rupee, Mexican peso and South African rand.
• Junk spreads. Currencies pared some of Monday's sharp moves, with the dollar rising to 145.50 yen from a low of 141.675 yen and also rising against the safe-haven Swiss franc. As fear indicators move, junk bond spreads have burst and are worth watching. Another recession indicator, the gap between two-year and 10-year Treasuries, turned positive on Monday for the first time since July 2022. The Nikkei volatility index is still double what it was last week. The STOXX volatility index ended Monday near its highest level since March 2022, while S&P volatility also remained elevated. As fear subsides, yields on German two-year safe-haven bonds should continue to rise. On Monday it hit its lowest level since March 2023.
• Wall Street's "fear meter" - the CBOE Volatility Index (^VIX) - soared, reaching its highest level since the early days of the COVID-19 pandemic in March 2020. Treasury yields fell sharply, with the benchmark 10-year Treasury yield (TNX) falling below 3.8%.
• Professor Siegel from Wharton University (where Trump and Elon Musk, among others, graduated) calls on the Fed to cut rates by 1.5%.
• Trump: "Stock markets are crashing, jobs are terrible, we're heading towards World War III, and we have two of the most incompetent 'leaders' in history. This is not good!!!"
• The world's largest lithium producer calls for China's dominance to be broken. US company Albemarle (ALB) is calling on governments to ease Chinese dominance in the market for minerals needed to make electric vehicles.
China processes 65% of the world's lithium. Since the beginning of 2023, the price of lithium has fallen by more than 80%. This has made it more difficult for Western companies to compete with Chinese ones due to their cheaper costs. This has forced Albemarle, in particular, to scale back its expansion plans.
• The Neuralink company successfully implanted a device for communication with a computer into the brain of a second volunteer - Elon Musk
We are talking about a patient with a spinal cord injury. The development is designed to enable paralyzed people to control digital devices with the power of thought. Neuralink's website says the chip uses 1,024 electrodes, thinner than a human hair, that are implanted into the human brain.
• In Japan - on Monday there was the biggest collapse of the Nikkei index since 1987. The Japanese Nikkei stock index fell 12.4% to 31,458.42 points on August 5. This is the biggest collapse in the main Tokyo Stock Exchange index, which includes indicators of 225 companies, in the last 37 years. The last time a similar situation was observed was in October 1987, when the Nikkei lost 14.9%, falling to 3836.48 points.
The broader Topix index fell 12.2% to 2,227. The Japanese banking industry index was particularly affected.
• The European Commission ordered the withdrawal of TikTok Lite from the EU market. The program allowed you to earn points for completing actions such as watching and liking videos.
• Elon Musk has resumed his lawsuit against Sam Altman and OpenAI. The new lawsuit is Musk's latest attempt to take legal action against the company. He states that OpenAI puts profit and commercial interests above the public good.
The lawsuit seeks a judicial determination that OpenAI's license to Microsoft to use its AI model is invalid. Musk also claims that OpenAI's language models go beyond the company's partnership with Microsoft.
• Five US states require Musk to fix chatbot artificial intelligence due to election misinformation - Reuters. The secretaries of state of five US states on Monday called on billionaire Elon Musk to fix the artificial intelligence of social networking site X's chatbot, saying it was spreading misinformation related to the November 5 election.
• An investigation into corruption at Glencore resulted in a Swiss fine. Glencore will pay $152 million after Swiss authorities concluded their investigation into the commodities trader and mining company, marking the end of more than six years of legal investigations in Europe and America.
• Artificial intelligence chip startup Groq has been valued at $2.8 billion in a new funding round. AI chip startup Groq has raised $640 million in new funding, highlighting investors' enthusiasm for AI chip innovation.
• Google lost the US Department of Justice's antitrust lawsuit against the search engine. The judge will likely rule on a remedy later this year or early 2025, which will undoubtedly be appealed. The court found it problematic that Google had paid "huge sums" to become the default search engine on many devices.
Google's loss in the antitrust case will have implications for the entire industry.
• Apple could suffer the most from the potential loss of advertising revenue sharing ($20 billion per year).
• Palantir (PLTR) shares are up 12% after the report.
• The market experienced a panic sell-off on Monday.
• The Bitcoin price fell below $50 thousand, showing a record drop since 2021.
• The largest companies, led by Apple and Nvidia, lost $1.43 trillion in capitalization (ultimately minus $650 billion) amid the collapse of stock markets.
• Nvidia shares fell 14% and Apple fell more than 8%.
• Shares of Alphabet, Amazon, Meta, Microsoft, Tesla fell by 12% on Monday morning.
• Traders rushed to the safety of bonds as fears of a slowdown in the world's largest economy intensified.
• Several online brokerages, including Charles Schwab, Fidelity and Vanguard, were unavailable to thousands of users early Monday.
• This morning the Japanese Nikkei is already rocketing back up +9% along with the Japanese yen falling more than 1%. Looks like the Japanese have finished their wild sale. And the world can breathe out calmly. At least for a while.
• Futures for US stock indices are growing by 1-2%.
Key events that could affect markets on Tuesday:
- Economic data: German industrial orders for June; S&P UK construction business activity index for July; retail sales in the eurozone for June; the Federal Reserve Bank of New York's second-quarter household debt and credit report; US trade data.
- Revenues in Europe: abrdn, Adecco, Bayer, Galenica, InterContinental Hotels.
- Debt auctions: re-opening of the auction for five-year German government bonds; re-opening of the auction for 19-year UK government bonds.
International reviews
• Activity in the service sector (in the US) has improved
- the ISM Non-manufacturing PMI index in July showed an increase to 51.4 from 48.8 last month.
- But the PMI indices worsened instead of the expected improvement:
S&P Composite PMI = 54.3 (previously 54.8, expected 55.0)
S&P Services PMI = 55 (previously 55.3, expected 56)
• Eurozone (July)
S&P Composite PMI = 50.2 (previously 50.9, expected 50.1)
S&P Services PMI = 51.9 (previously 52.8, expected 51.9)
• Trump has lost his lead over Harris - CBS News poll/ US presidential candidate Kamala Harris has surpassed her opponent Donald Trump in terms of popular support. The Democratic representative was ahead of the ex-president by 1% - 50% to 49%. Trump: Venezuela is now led by a dictator.
• They wanted to exclude Hungary from the Schengen zone. This was demanded by a group of 70 members of the European Parliament. For now, it's temporary.
They cited the reason that Budapest has simplified the issuance of visas to Russians. Although Hungary has already explained that this is how they want to attract labor from the Russian Federation.
• Taiwan is preparing for a possible Chinese invasion - WAPO. The threat from Beijing has intensified following Xi Jinping's statements about the inevitability of China's reunification with Taiwan and his willingness to use force to achieve this goal. Xi Jinping is also increasing his military presence around Taiwan, sending more military aircraft and naval ships to test the island's defenses, the newspaper said.
• Iran warns pilots and airlines to avoid its airspace amid threats to attack Israel - The Wall Street Journal.
According to the newspaper, Iran's message came this morning after US Secretary of State Antony Blinken told G7 foreign ministers by phone that Tehran could attack Israel within 24-48 hours.
Jordan and Saudi Arabia stated that they will not allow any country to use their airspace
/ That is, they will shoot down Iranian drones and missiles on their territory, just like last time.
Israel has said it will destroy all of Iran's nuclear facilities
if Iran attacks even one civilian facility in Israel.
• Bangladeshi Prime Minister Sheikh Hasina announced her resignation and was evacuated by helicopter to India.
This happened after protesters stormed the residence of the head of government.
The protesters are demanding an end to the quota system that reserves up to 30% of government jobs for family members of veterans who fought in Bangladesh's 1971 War of Independence.
Protests against the quota system for government jobs have been ongoing in Bangladesh for several weeks.