Panic in the markets and will there be a new “Black Monday?” Fundamental and corporate reviews
Stock reviews
• The selling sprint led to trading halts in several markets, including the Topix and KOSPI, while the Nikkei fell a daunting 7% at one stage. The index is now in bearish territory, down 20% from its peak less than a month ago.
• Investors are hoping central banks will come to the rescue with a global version of the Fed put option. Futures now imply a 73% chance the Fed will cut rates by 50 basis points in September and a total of 115 basis points by Christmas. Rates are expected to reach around 3% by the end of next year.
• Markets have priced in another 74 basis points of cuts from the ECB and 47 basis points from the Bank of England. There are also doubts that the Bank of Japan will go ahead and raise rates again in October, less than a week after it switched sides with the hawks. As a result, JGBs recovered all of their recent losses, bringing the 10-year yield back to April levels. There is even talk about the Fed easing rates between meetings. The Fed's Goolsby downplayed the impact of Friday's wages report and has a chance to do so again Monday with President San Francisco Daley.
• The unemployment rate of 4.25% is still quite low historically, and analysts suspect it will fall again in August. Those who invoke Sama's rule should remember that economics is not really a science, no matter how much it might like to be. Not long ago, negative interest rates were considered impossible.
• The US ISM Services Index is also due to be released, with analysts hoping for a rebound after an unexpected decline in June. Obviously, the employment index will be worth looking at, given how many workers there are in this sector. The Fed's survey of senior loan officers will draw more scrutiny than usual for any signs of credit stress.
• Treasuries failed to support Friday's rally, with the 10-year yield returning to 3.78%, having touched an earlier low of 3.723%. Fed funds futures also pared early gains, especially in the 2025 contract. However, the two-year yield is now just eight basis points away from falling below the 10-year and making the curve positive for the first time since mid-2022. Such disinversion has sometimes foreshadowed recessions in the past. Goldman Sachs raised the risk of a recession to 25%, while JPMorgan estimates it to be twice as high.
• Nvidia launches production of chips that circumvent US sanctions and take into account export restrictions. The B20 model has been developed for Chinese customers - a simplified version of the powerful Blackwell GPU.
Despite the reduced capabilities, the B20 makes up for it with improved throughput, allowing multiple cards to be combined for increased processing power.
• A delay with Nvidia's new AI chip could affect Microsoft, Google, Meta, Information reports.
The delay could impact customers who have collectively ordered tens of billions of dollars worth of chips, the newspaper reported, citing people who help make chips and server hardware for Nvidia.
• Meta advertises cocaine, opioids and other drugs, - WSJ. They put legal drugs in the headlines, and put ecstasy, cocaine and hard drugs in the photos so that the buyer understands what they are talking about. WSJ notes that the first complaints about this appeared almost six months ago - however, even after investigations by journalists, Meta did not change anything.
• Berkshire Hathaway slashed its stake in Apple by nearly 50% as part of a massive sell-off in the second quarter.
Berkshire sold a net $75.5 billion in shares during the quarter, helping boost its cash reserve to a record $276.94 billion. Berkshire burned through $345 million for share repurchases in the second quarter, which is less than $2.6 billion for share repurchases in the first quarter. This information could weigh on AAPL shares on Monday.
• Apple leaked the design of the new iPhone 17 (September 2024). One mega-wide camera. One, the most expensive model with an “ultra-thin” body. New A19 processor. Apple's own chip for 5G instead of Qualcomm (will QCOM shares get worse on Monday?). Price $799-1299.
• Artificial intelligence lawsuits from music labels create a new conundrum for US courts. Sony Music, Universal Music Group and Warner Music sued Udio and another AI music company called Suno in June.
• Character.AI co-founder and CEO Noam Shazir is returning to Google. Shazeer is returning to Google after leaving the company in October 2021 to found a chatbot startup backed by a16z. In his previous role, Shazir led the research team that created LaMDA (Language Model for Dialogue Applications).
• Richmond Federal Reserve Bank President Thomas Barkin said the US economy is in good shape. Although it is unclear whether the labor market is returning to its previous growth rates.
• Coca-Cola will pay $6 billion in a tax refund case challenging a judge's decision. Coca-Cola said Friday it will pay $6 billion in tax refunds and interest to the Internal Revenue Service as it fights a federal tax court's final ruling in the 17-year-old case.
• Hedge funds turn bearish on concerns about economic slowdown. Global hedge funds have continued to add bearish bets on stocks in the portfolio over the past week. New data has raised concerns that the US economy is slowing faster than expected, Goldman said.
• The US Federal Trade Commission and the Department of Justice sued TikTok and ByteDance. For violation of the Children's Online Privacy Protection Act (COPPA).
• The dollar fell the most since May. An unexpectedly weak US labor market report has fueled concerns about the economic outlook, leading traders to bet the Federal Reserve will cut interest rates more aggressively this year.
• The dollar divided Goldman, Fidelity and Bloomberg emerging market bonds.
Goldman Sachs believes emerging market investors should favor dollar-denominated bonds over local currency-denominated bonds. Fidelity International says otherwise.
• Congress has officially submitted a bill that proposes to make Bitcoin a strategic reserve asset of the US Federal Reserve.
• Investors are looking to the long term as rate hikes weigh on Japan - Bloomberg.
Japan's rate hike last week dealt the biggest blow to the benchmark index in eight years. Despite the turmoil, some investors still have faith in the long-term prospects for the country's stocks.
• Credit traders rush to hedge concerns about the US economy - Bloomberg.
Debt investors are buying insurance against corporate bond defaults as concerns grow over the health of the U.S. economy and European consumers.
• The perfect storm of financial markets. The Bank of Japan raised the discount rate and reversed the yen flow - the Nikkei fell by 22% from its peak on July 11. And the Japanese yen strengthened by 10% from the bottom of the same day.
• Investors in the US are scared of the recession and AI stock bubble. The pendulum of inflated forecasts and surreal optimism has swung into a zone of panic. NVDA shares are down nearly 30% from their June 20 peak, trading below $100 per share in premarket trading.
• Bitcoin fell to $54 thousand. And AAPL shares fell 7% this morning after the news that Buffett sold almost half of his giant stake in the 2nd quarter, apparently considering the prices too high.
• The threat of war in the Middle East keeps oil prices from falling in the morning and adds to fears.
• Panic is a bad advisor. Usually on such days you need to act against the crowd. But buying falling knives is also a bad idea. Actions should depend not so much on psychology as on personal financial status and personal goals.
• The coming week will not provide investors with much new macroeconomic data. The main publications to expect will be data on activity in the services sector and weekly applications for unemployment benefits.
On the corporate front, Airbnb (ABNB), SuperMicro Computer (SMCI), Disney (DIS), and Eli Lily (LLY) reported earnings.
Key events that may affect markets on Monday:
- Final global indices of business activity in the services sector, producer prices in the EU.
- ISM US Services Survey for July, Fed Releases Senior Loan Officers Survey
- Chicago Federal Reserve Bank President Austan Goolsbee speaks, as does San Francisco Federal Reserve Bank President Mary Daly.
- Google and Microsoft executives will make presentations at the Black Hat USA 2024 conference.
- The Federal Reserve will publish the results of a survey of credit institution executives on bank lending practices.
International reviews
• Caixin China PMI signals revival in services sector
Caixin Media Co. and S&P Global reported Monday that the Caixin services purchasing managers' index rose to 52.1 in July from 51.2 in June.
• Trump congratulated Putin on a “wonderful deal” to exchange prisoners with the West. He stated this at a rally in Atlanta. "I'd like to congratulate Vladimir Putin on getting another great deal," he told supporters in Atlanta, Georgia. According to the former US President, the exchange was “terrible” for Washington.
• The court will resume consideration of Trump's case of trying to overturn the election results, - Reuters. A US District Court judge has set a preliminary hearing date in the criminal trial of former President Donald Trump, who is accused of illegally attempting to overturn the results of the last presidential election, in which he was defeated.
The value of Donald Trump's stake in Trump Media & Technology Group fell by $900 million after Kamala Harris entered the race for the White House.
Since then, the company's share price has fallen about 23%.
• Biden warned Netanyahu against escalation in the Middle East and threatened to cut off aid - Axious
He notes that the risk of regional war may increase. US officials have warned that Iran could launch an attack on Israel as early as August 5. US officials expect Iran's actions to follow a similar pattern to the April 13 attack on Israel, which launched hundreds of Shahed-131/136 drones and ballistic missiles.
• The head of the US Army Central Command, General Kurilla, arrived in the Middle East. He is there to coordinate and plan actions in the event of an Iranian attack on Israel, as well as to take inventory of available weapons and ammunition.
• “We have truly entered into a war economy”: France is rapidly ramping up production of CAESAR units. Before the war, the country produced 2 such guns per month, now this number has increased to 6-8 guns, with plans for 12.
• EU sanctions against the Russian Federation have cost Germany more than €50 billion over 10 years. It is reported that against this background, there have long been calls in the country to weaken or revise EU restrictions against the Russian Federation.
Germany has traditionally been the largest trade and economic partner of the Russian Federation in Europe. Before the introduction of sanctions, Germany accounted for about a third of all Russian exports to the EU. At the same time, the supply of goods has traditionally served as a growth driver for German industry.
• Protests in Britain over the killing of children: about a hundred people were detained by police on Saturday, August 3.
Protests took place in different cities of Great Britain and escalated into clashes between protesters and police.
Demonstrations across the country were sparked by an attack on children in the English city of Southport.
Elon Musk said that “civil war is inevitable” in the UK.
• China's top economist calls for higher inflation to boost growth. China must increase the intensity of its macroeconomic policies and stick to an inflation target of 2-3%, says a central bank adviser. Huang Yiping, a member of the monetary policy committee of the People's Bank of China, gave a carefully worded assessment of the country's economic policy, calling for more emphasis on stimulating consumption. In a communist state, public objections to the government are generally avoided.
/ It looks like China is preparing to devalue the yuan to stimulate the economy.
• The Prime Minister of German Thuringia called on European countries to create a defense alliance with Russia. "We must finally think about Europe as a whole, and Russia is also part of this." :)