Morning Brew August 8 2024

Good morning,

Traders are trying to make sense of the short-term market moves by looking at the longer-term picture, causing large swings. Several banks in the US see a recession on the horizon after the SAHM rule was triggered and are forecasting the Fed to cut rates. JPMorgan was very vocal, seeing 75% of carry trades unwound, predicting 50 basis point cuts in September and November, and giving a recession a 35% chance.

Bill Ackman was quoted as seeing the Fed as too slow in hiking rates and now too slow to lower them.

The broad questions that will be key for the path of equities are: Soft or Hard landing, the broader monetization of AI, sector rotation, and Central Banks' reactions. There will not be a quick answer to these questions, causing nervousness. A hard landing refers to a sharp and sudden economic slowdown that results in a recession, while a soft landing occurs when an economy slows down from a rapid growth phase to a more sustainable pace without falling into a recession.

Yesterday, a fairly bad bond auction in the US caused jitters and led indexes to move lower, yields to rise, and the USD to gain. The Dow ended down 0.6%, the S&P 500 down 0.8%, and Nasdaq down 1.1%. Ten-year yields rose as high as 3.96% before retreating to 3.90% again. The USD Index rose to 103.30 and is now just below 103 again. Gold and silver lost value yesterday and are now stabilizing. The Japanese Yen remains in the spotlight after the Bank of Japan hinted it would refrain form hiking in extremely volatile markets. Bitcoin and Ethereum gain app 4%. 

The calendar remains void of events that will provide significant input, making sharp moves or deadlock likely until we see a clearer picture. That may only be the case at the Jackson Hole conference in 14 days.

Charu wrote a great summary of the US economy and the key questions that is very much worth a read.

Remain very cautious of your risk and carefully consider if you want to be trading or investing. For investing, the long-term average entry price and the cost of holding are essential; for trading, risk management and timing are crucial. Confusing or mixing the two can go very wrong.

Thursday

• Data: US Initial Jobless Claims
• Speakers: Barkin
• Earnings: Lilly, Paramount, The Trade Desk

Friday

• Data: China CPI, PPI
• Earnings: Nikola