Market Report:
📉 Japanese market in trouble:
We have long raised in our reports the following dilemma facing Japan. The weakness of its currency was making its imports more expensive, considering that Japan is a purely importing country, this could raise the prices of its products. Indeed, Japan’s inflation rate has risen to 2.8 % in the last two consecutive periods. The Bank of Japan can apply interest rate hikes and liquidity reduction in the bond market to strengthen the yen and contain inflation. However, the second problem facing the Japanese economy is falling economic growth. In economics, we call this stagflation, falling economic growth with rising inflation. If the Bank of Japan takes measures to strengthen the yen, it can also cause a further contraction in its economy and generate a recession. This is the current scenario we are seeing.
📊 Related Market:
So far this week, the Nikkei index has lost more than 10%. On the other hand, the yen dollar has fallen more than 9% in the month of July. The actions taken this week by the Bank of Japan have worked, the yen has strengthened rapidly in recent days. However, it is costing the Japanese stock market a fall.
🔮 Possible scenario:
Given the extreme movement that is happening in the Japanese currency and stock market, we are likely to see a corrective move in the coming days that will weaken the yen again and push the Japanese stock market higher. The Nikkei index could pivot in the zone of 50% of the upward range of the last few months, around 36,000 points. To do so, it will first have to consolidate and halt the declines.
🛠US Labour Market:
Finally, today’s employment data has finally satiated what the Fed has been waiting for so long. a clear cooling of the labour market, in fact, so much so, that the next concern we will start to hear in the days ahead will be whether the US may fall into recession. a few days ago we shared one of the macroeconomic rules that since the 70’s establishes recessionary cycles in the US, namely three consecutive periods with a 0.5% increase in the unemployment rate. we are not in that scenario, but we are getting close. the unemployment rate has increased by 0.1% in the last 4 months, and the last month it has increased by 0.2%, standing today at 4.3%. NFP has also been weaker than expected.
💻 Corporate Results in Tech sector.
The technology sector disappointed investors yesterday. On the one hand, Apple announced worse results, $14.7 billion below the $15.3 billion expected. On the other hand, Amazon, indicated to its investors that profits were not a priority for the company for now due to the heavy spending they were doing on artificial intelligence. Its quarterly revenue expectations went from $15 billion to $11.5 billion.
📉 Related Markets:
The reaction, as might be expected, has been a sharp weakening of the dollar, with the DXY index falling below 104 support points, and now standing at 103.30. Consequently, the ERUUSD has risen sharply towards 1.09, and the GBPUSD has recovered part of the accumulated decline, and is now back above 1.28.
🤔 Here comes the key. Equities have not responded positively, indicating that there is a new factor of concern. If the Fed’s rate cut is almost guaranteed with these data, the lack of stock market rallies means that distrust is growing. The technology sector seems to be slowing down, and has been the main growth driver of the US stock markets, without it, the indices are flat. It seems that promises of rate cuts are no longer enough.
📉 The SP500 is still 5400 points, retreating from the 5600 points it tried to recover this week. Nasdaq 100 loses 18,500 points. And worst of all, the Russell 2000, without a strong technology sector in the index, falls today by almost 3.5% so far this session, falling back to 2215 points.
🔮 Possible scenario:
Given the increased uncertainty and scepticism among the investing public, we expect safe haven assets to once again become one of the hot markets. In fact, against this backdrop, gold has broken all-time highs if it has risen above $2500 per ounce. Bitcoin, as an alternative asset to financial markets, also appears to be in potentially bullish positions and not far from its all-time highs.
