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Key Stories from the past week: Markets moving across the board!
Macro
Saxo
Plenty of action in markets this week – US tech names facing a reset, Yen has continued to gain, precious metals retreat from highs, robust treasury auctions, China reacts to stunted growth, and plenty of earnings to keep on top of too. Saxo clients have been active in Semiconductor names, but also seem to be taking the opportunity to buy the dip in stocks that have seen decent pullbacks like CrowdStrike and LVMH. Clients are trading plenty of USDJPY albeit with a relatively even split of long vs short. Here is what we have seen from the trading desk as the key stories for the week.
Yen carry-trade unwinding
July has seen the Yen finally gain some strength as expectations are mounting for the yield differential between Japan and other major economies to start to converge. USDJPY is always a hotly traded fx pair, but this week it has seen almost 50% more Saxo trading clients than the pair that takes second place (EURUSD). The potential unwinding of the Yen carry-trade has seen decent moves in Yen pairs this week, but it also has wider implications for markets. The most obvious being Japanese equities who are hugely affected by moves in the Yen. Saxo has seen a 21% WoW uplift in clients trading the Japan 225 Index.
Carry Unwinding in Japanese Yen
Weak earnings ignite sharp sell-off
Wednesday this week a sharp sell-off in equity markets hit major indices, with Nasdaq 100 experiencing the biggest decline seen since December 2022, trading down as much as 3.8% towards the end of the session. Big technology stocks led the decline, specifically the “Magnificent 7” as Tuesday’s Tesla and Alphabet Q2 earnings reports failed to impress markets, partly triggering the sell-off. Stretched investor positioning, yen carry unwinding and rising political uncertainties also contributed to the broader risk-off sentiment behind the correction which sent volatility back to up April levels. Clients at Saxo have overall remained largely equal long / short on major US indices, albeit taking slightly more (8.6%) long exposure this week compared to last.
Equity Market Correction: How to Position for Turbulence
Tesla & Alphabet fail to impress
Two of the “Magnificent 7” companies – Tesla and Google-parent Alphabet – reported earnings on Tuesday after market close. Tesla: Despite an increase in revenue, Tesla’s earnings showed squeezed profit margins, raising concerns about future profitability. Earnings per share missed expectations (52c vs 60c) and the delay of the robotaxi unveiling along with little news on AI progress sent the stock tumbling 12% in the selloff. Alphabet: The Google-Parent Alphabet initially traded up 2.5% as key metrics like EPS & revenue surpassed expectations. However, a miss on YouTube ad revenue and high spending on AI projects that do not seem to be generating revenues for now, both attributed to the stock reversing gains to trade down 5% in aftermarket. Our clients were far more active after the earnings reports, doing between 2-3x the number of trades, generally adding to long exposure.
Market Volatility: A rough day in the Market
China acts to support slowing economy
China's PBOC announced a series of monetary policy surprises in attempts to spur sluggish growth. Several rates were trimmed on Monday 22nd July, including the policy interest rate on 7-day reverse repo, which was cut to 1.7% from 1.8% to "step up financial support for the real economy." On Thursday 25th July the PBOC lowered the one-year medium-term lending facility (MLF) rate for the first time in nearly a year, lowering it to 2.3%, from 2.5%. The bank issued 200 billion yuan ($27.5 billion) in loans to financial institutions at this rate. The action comes days after the conclusion of the third planum and following a Q2 GDP reading that fell short of expectations.
Next week we have 2nd quarter results from more of the world’s top tech giants, these being Microsoft (Tues), Meta (Weds), Apple and Amazon (Thurs). It’s an extremely busy week for earnings in general so keep abreast of the calendar for a full rundown. The week also brings us to the latest Interest Rate decisions from the US Federal Reserve and the Bank of Japan (Weds) and from the Bank of England (Thurs). Significant data releases to look out for are Chinese PMIs and then European Q2 GDP (Tues), US ISM PMIs (Thurs) and finishing with US payrolls for July out on Friday.