Market Report.
📉 The media is alarmed by Tesla’s 12% drop at the close of trading yesterday. However, to keep an objective perspective, it is fair to remember that Tesla rose more than 30% in the first week of July.
🤖 In a sort of flashback to the dotcom effect, Investors worried on AI stocks after Alphabet’s earnings report highlighted questions around the timeline for ROI on massive AI infrastructure spending. Some argue commercial hopes for AI are overblown given vast costs required, raising stakes for upcoming Big Tech earnings reports.The Nasdaq plunged over 3% in its worst day since October as AI names like Nvidia and Broadcom led declines. Small caps outperformed as the rotation from tech continues, with the Russell 2000 up on the week versus losses for the S&P 500 and Nasdaq 100.
📉 Signs of imminent cuts in US interest rates continue. Weak economic data on manufacturing and home sales fueled expectations of deeper Fed easing to achieve a soft landing.Yields on 2-year bonds continue to fall, while yields on 10-year bonds rise. This is causing the US yield curve to gradually return to its upward slope, normalising a healthier financial situation.
📉 All the factors that the Fed needs to cut rates are in place: Inflation pressures have eased significantly from earlier highs, with the core PCE price index up just 2.6% year-over-year in May. Wage growth has also moderated from its peak, reducing potential second-round inflation effects. The three-month average unemployment rate has risen 0.43 percentage points from its low, close to triggering the Sahm Rule recession signal.
📉 An article in Bloomberg mentions the possibility that we are approaching a scenario similar to that described by the Sahm rule, which establishes as an empirical indicator that three consecutive rises in the unemployment rate of 0.5 percentage points is an indicator of recession since the 1970s. Over the last 3 months, the US unemployment rate has risen by 0.1% in each period.
🏦 The Bank of England unveiled a new facility to lend cash directly to non-bank financial institutions such as pension funds in times of “severe” bond market dysfunction, taking government bonds as collateral. This represents a radical step beyond the central bank’s traditional purview of managing liquidity through commercial banks. Reflecting the growing risks from unregulated entities, the facility aims to avoid disruptions like the UK bond market blow-up two years ago by providing direct support to asset managers, which have increasingly stepped into roles in the financial system without facing the same post-crisis regulations as banks. The move underscores the need for the BOE to stem risks emerging from the non-bank sector.
📈 Market Review:
📉 The market starts to get interesting. The #SP500 loses the 50% range level without buying. It is closing the June Gap contango. The weird thing is that now, Russell2000 is also falling at the moment, this would no longer be redistribution.
📉 The Nasdaq100’s decline continues to accelerate. It is currently struggling to stay above 19,000 points, if lost, the nearest support zone is probably around 18,500 points.
📉 Dollar has weakened again on the back of the bad macro data mentioned above. However, it is still holding above its support of 104 points on DXY. EURUSD, sideways in the 1.0850 area.
🛢️ In commodities, crude oil continues to fall, with Brent crude falling to $80.25. Gold has also fallen below $2400 per ounce. And bitcoin has retreated to 64,000 since the last bullish impulses ahead of the US political uncertainty of the last two weeks.
📉 After LVMH failed forecasts for its sales growth in the second quarter, the company’s selloff has European shares in a tailspin.
