Tag: Economics

This is our weekly market update, where we start in the US, go across to Europe and Asia and end in Australia, covering commodities and crypto on the way. And which ever way you look at the past week, it was a volatile perfect storm driven by weird US jobs data, Middle East tensions, and Japan’s policy shift which together managed to ignite global market chaos. Ahead, I think traders need prepare for an extended period of uncertainty and volatility.

They continue to swing from one side of the deck to the other, as Investors over-reacted swiftly and decisively, dumping stocks in a classic risk-off maneuver, from a far weaker-than-expected Nonfarm Payrolls (NFP) report but then ran back, on slightly stronger data a week later. Many economists reckon the reaction to the data was overblown given the numbers may be skewed by immigration and Hurricane Beryl and better-than-expected jobless claims data on Thursday also supported that view, sending stocks rallying.

The market panic that began in the U.S. quickly spread to Asia, with Japan bearing the brunt of the sell-off. The Nikkei 225, Japan’s benchmark stock index, suffered its most catastrophic decline since the infamous Black Monday of 1987, plunging by a staggering 12% within just six hours. The Japanese yen surged in value by over 10% in less than a month, triggering stop orders and forcing numerous macro hedge funds to liquidate their long USD/JPY positions. Thus, the unwinding of the yen carry trade triggered a vicious cycle of selling pressure, which spread into other markets. But then we got a pull back from the BOJ on potential rate hikes and on Tuesday, S&P 500, Nikkei 225 and bitcoin reversed to the upside and a sense of normalcy started to returned to the markets.

The VIX, which had traded roughly between 12 and 20 for most of the year until last Friday, surged to above 65 — a level associated with outright investor panic (but note the VIX futures did not), and commentators like former Treasury Secretary Lawrence Summers suggests there are technical issues with the VIX, “My understanding is that because there are some illiquid instruments that go into the calculation of the VIX, the VIX had a somewhat artificial move on Monday,” Summers told Bloomberg. “Since that is so widely watched an indicator, issues of liquidity, issues around how it settles, I think should be studied by the relevant parties in the industry and the regulator — the SEC.” The VIX closed down 14.4 per cent to 20.37 in Chicago on Friday.

Investors also await next week’s readings on U.S. consumer prices and retail sales for July, which could provide fresh evidence on the chances of a soft landing for the American economy.

http://www.martinnorth.com/

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Digital Finance Analytics (DFA) Blog

After The Perfect Storm, How’s The Market Wreckage, And What’s Next?

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00:00 / 00:20:46

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We are now deep into uncertain territory, as the thesis “this time is different” is being tested by reality, and for now, reality is winning. Investors are running from one side of the boat (hopefully not the titanic), to the other, as a fear of recession iceberg looms for investors still leveraged to the gunnels in AI tech, are hopelessly wrongly positioned for such an event.

I can show you thousands of reports claiming this time is different – plenty suggesting the long inverted bond yield curve had lost its power to predict a recession; plenty arguing extreme share market concentration was no big worry; plenty arguing that the mini bubble in artificial intelligence was nothing like what we saw in the DotCom era. But now, (as expected), all those beliefs are being challenged by a perfect storm of market fears. Even though talk of broad recession still seems far-fetched, with real-time U.S. GDP estimates still tracking growth of 2.5%, fears of a negative pulse through the industrial world from a stuttering Chinese economy have been building for weeks.

A series of ugly data points also inflamed investors’ recession fears. There was the weaker than expected data on job openings and a manufacturing activity gauge that showed US factories are going backwards with data showed U.S. manufacturing activity contracted at the fastest pace in eight months in July. And then US non-farm payroll data showed the US economy added 114,000 jobs in July, compared to expectations for 170,000 jobs, while the unemployment rate rose from 4.1 per cent to 4.3 per cent. Did Hurricane Beryl, which knocked out power in Texas and slammed parts of Louisiana during the payrolls survey week, contributed to the below-expectations payrolls gain? Notably, June’s labour market data was also revised down; downward revisions have now occurred six out of the last seven months. We are close to a possible triggering of the so-called ‘Sahm rule’ that maps the pace of a rising U.S. jobless rate against the onset of recession.

And this to me could be said of the broader markets too, hard to read from here – the likelihood of more declines and rotations from big tech are there, at least until NVidia’s next update, while markets might now have swung too far towards recession fears (remember traders make money from volatility). A very interesting time heading into the next RBA meeting… and a continue to believe markets will slide into September. Perhaps now the FED PUT is in play, again..

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Is This Time Really Different, As Equities Fall Hard?

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00:00 / 00:23:49

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