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By James Elliot
Updated: Aug 05, 2024 at 20:15
FX InsightsUSD to JPY
Risk markets crashed lower at Monday’s open.
A perfect storm of diverging policies and yields in Japan and the US have blown up the carry trade.
Yields have collapsed in the US as markets expect aggressive Fed cuts to save the economy.
Markets crashed lower on Monday, continuing on from last week’s bearish moves. The most notable moves happened in the Nikkei, which was briefly down –15%, and the Nasdaq which was down –5%. Bitcoin was also down –13% and USDJPY continued to drop with another –3% move.
This is mostly the result of the unwinding of the USDJPY carry trade which has run into a perfect storm of negative drivers. Not only did the BoJ hike rates last week and strengthen the yen, the USD and US yields are falling rapidly as markets price in slowing growth and an aggressive Fed cutting cycle. This was put in sharp focus by Friday’s extremely weak jobs data. 120 bps of rate cuts are priced in by the year end when a week ago it was only around 75bps. A double-sized 50bps cut is now expected in September.
The diverging path of yields is blowing up an overcrowded carry trade which investors are scrambling to pare.
USDJPY Moves Sending Shockwaves Through the Markets
While the USD is crashing against the yen, it is reasonably steady against other currencies on Monday and is higher against the pound by 0.3%. On the other hand, it is lower by around the same amount against the euro, which is seen as a relative safe haven under the current conditions. EURGBP is higher by 0.7% and briefly traded to 0.859.
It is unclear how long the situation will last, but if the Nikkei has another session like Monday’s, surely the BoJ will step in with some measures to stabilize its markets. What exactly it or the Fed is willing to do exactly is unclear, though; any move would likely unwind the actions they took just last week when both the BoJ and Fed had meetings. Making a U-turn so quickly would be humbling. The first approach would be some supportive comments. As ING note,
“Presumably the Fed will have to offer some soothing words. Look out for a CNBC appearance today from Chicago Fed President Austan Goolsbee at 1430CET.”
US Yields Take a Dive
Yields have collapsed in the US and markets now expect an aggressive easing cycle from the Fed. All of this was triggered by two events last week which suggest the US economy could be in trouble. Firstly, the Fed made a key shift in focus and changed its statement from saying the committee "remains highly attentive to inflation risks" to say they are "attentive to the risks to both sides of its dual mandate." In other words, the labour market is a real concern.
Secondly, economic data took a real turn for the worst. Thursday's Unemployment Claims of 249K and weak ISM Manufacturing PMI were more red flags but it was Friday's Jobs Report which provided the nail in the coffin. The readings were weak across the board. Perhaps most troubling was the unemployment rate which has risen from a cycle low of 3.4% to 4.3%. The odds of a -50bps move in September have risen markedly.
“...the market is no longer looking for an orderly adjustment in Fed policy towards some kind of neutral rate - say near 3.25%. No, the fear of a recession is now bringing in the idea of stimulative monetary policy. This has seen the USD 1 month OIS rate priced two years forward priced sub 3.0%,” continued ING.
This may well be an overreaction, but for now the consequences are being felt across most global markets and the move could have further to run.
Stocks plummet worldwide as worries mount that U.S. economy has hit the brakes
Trader Gregory Rowe works on the floor of the New York Stock Exchange, Monday, Aug. 5, 2024.(AP Photo/Richard Drew)
By Dave Boyer - The Washington Times - Monday, August 5, 2024
A swift global panic struck financial markets Monday, triggering stock sell-offs around the world amid fears that the U.S. economy is slowing into recession territory in the presidential election year.
Wall Street posted its second straight day of sharp losses after seven months of relatively steady growth. The technology-heavy Nasdaq composite fell 3.4%, the S&P 500 was down by 2.9% and the Dow Jones Industrial Average fell 1.9%.
Earlier Monday, Japan’s Nikkei 225 plunged 12.4% for its worst day since the 1987 crash. South Korea’s benchmark Kospi lost 8%. The losses cascaded through Europe, with London’s FTSE 100 down 2% on its worst day of trading since January.
Tech stocks in the U.S. sustained some of the heaviest losses as investors worried that spending on artificial intelligence might not bring results soon. Nvidia Inc. lost more than 6%, Apple was down 4.4% as Berkshire Hathaway cut its stake in the iPhone maker, and Microsoft fell 3.4%.
Investors worldwide reacted to the Labor Department’s report of weaker-than-expected hiring in July. They were concerned that the Federal Reserve had kept interest rates too high for too long to bring down inflation, which soared to a 40-year high under the Biden-Harris administration. The jobless rate in July rose to 4.3%, the highest since October 2021.
Economic anxieties highlighted by the massive sell-off rapidly regained prominence in the presidential campaign.
President Biden, returning to the White House from a weekend at his home in Delaware, didn’t respond to reporters’ shouted questions about the stock market. Vice President Kamala Harris, who quickly captured the Democratic Party nomination after Mr. Biden dropped out of the race, was huddled in meetings with advisers as she prepared to announce her selection of a running mate.
Her Republican opponent, former President Donald Trump, blamed Ms. Harris and the president for the market chaos, signaling the renewed importance of the economy and high prices as campaign themes.
“Of course there is a massive market downturn,” Mr. Trump said on social media. “Voters have a choice — Trump prosperity, or the Kamala crash & great depression of 2024.”
Sen. Tom Cotton, Arkansas Republican, posted on X: “If you think the economy is bad today, putting a San Francisco socialist in charge would make it much worse.”
Ms. Harris has been trying to calibrate her economic message as she takes over the Democratic campaign. “Bidenomics” has not sat well with voters who, despite a good employment picture for the past few years, have faced punishing price increases that canceled out wage gains.
Sen. J.D. Vance of Ohio, the Republican vice presidential nominee, will hold a campaign event in Philadelphia on Tuesday hours before Ms. Harris introduces her running mate to Democratic voters in the city. The Trump campaign gave a preview of Mr. Vance’s visit by saying, “The stock market is crashing because of weak and failed Kamala Harris’ policies. … In weak, failed, and dangerously liberal Kamala Harris’ America, families are struggling to afford the basics and stay safe.”
The Trump campaign said Pennsylvania families have had to pay an average of $958 more per month because of higher prices.
On Wall Street, some traders began wondering whether the damage was so severe that the Fed would have to cut interest rates in an emergency meeting before its next scheduled decision on Sept. 18. The central bank took no action on rates at its meeting last month.
“The Fed could ride in on a white horse to save the day with a big rate cut, but the case for an inter-meeting cut seems flimsy,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Those are usually reserved for emergencies like COVID, and an unemployment rate of 4.3% doesn’t really seem like an emergency.”
Some of Wall Street’s recent declines may also be air coming out of a stock market that has ballooned to dozens of all-time highs this year, in part on a frenzy around AI technology and hopes for coming cuts to interest rates. Critics have been saying for a while that the stock market looked expensive after prices rose faster than corporate profits.
“Markets tend to move higher like they’re climbing stairs, and they go down like they’re falling out of a window,” said J.J. Kinahan, CEO of IG North America. He attributed much of the recent volatility to euphoria about AI subsidies and “a market that was ahead of itself.”
Professional investors pointed to the Bank of Japan’s move last week to raise its primary interest rate from nearly zero. Such a move helps boost the value of the Japanese yen, but it could also force traders to scramble out of deals for which they borrowed money at virtually no cost in Japan and invested it elsewhere around the world.
In some positive economic news Monday, a report said growth for U.S. service businesses was slightly stronger than expected. According to the Institute for Supply Management, growth was led by businesses in the arts, entertainment and recreation industries, along with accommodations and food services. Treasury yields also pared their drops after the better-than-expected data.
Others pointed to second-quarter annualized growth of 2.8% in the U.S., which was much stronger than expected.
For most of the year, investors worldwide drove stock markets higher, convinced that central banks were successfully, if haltingly, getting inflation under control. They were buoyed by a healthy U.S. economy and the promise of artificial intelligence.
By June, Nvidia, the leader in AI chipmaking, had joined Apple and Microsoft as $3 trillion companies. In mid-July, the S&P 500, Nasdaq composite and Japan’s Nikkei 225 had risen to all-time highs. Investors thought the high interest rates implemented by the Federal Reserve were taming inflation without causing a sharp slowdown in the U.S. economy, the world’s largest.
That confidence has taken a hit the past few days. Investors are listening to warnings that Nvidia and other Big Tech stocks have become too expensive and that massive spending on AI might not turn into profits for a while.
As the markets plummeted Monday, several online brokerage firms, including Charles Schwab, Fidelity and Vanguard, appeared to be down for thousands of users.
User reports appeared to peak around and just before 10 a.m. EDT, data from outage tracker Downdectector showed. Some frustrated customers online said that they were unable to log in or access their account balances.
“Due to a technical issue, some clients may have difficulty logging in to Schwab platforms,” Charles Schwab wrote on social media platform X. “Please accept our apologies as our teams work to resolve the issue as quickly as possible.”
By midday, Schwab confirmed that the issue had been resolved.
A Fidelity spokesperson told The Associated Press via email that the company was aware that some customers were experiencing “intermittent issues” earlier in the day but said that had been resolved.
Vanguard did not immediately return a request for comment.
At Charles Schwab’s peak, users reported nearly 15,000 outages around 9:50 a.m. EDT, per Downdetector. Fidelity and Vanguard had 3,800 and 2,900, respectively, closer to 10 a.m. EDT. User reports appeared to fall notably for all three platforms about an hour later.
• Stephen Dinan contributed to this article, which is based in part on wire service reports.
• Dave Boyer can be reached at dboyer@washingtontimes.com.
By Dave Boyer - The Washington Times - Monday, August 5, 2024
A swift global panic struck financial markets Monday, triggering stock sell-offs around the world amid fears that the U.S. economy is slowing into recession territory in the presidential election year.
Wall Street posted its second straight day of sharp losses after seven months of relatively steady growth. The technology-heavy Nasdaq composite fell 3.4%, the S&P 500 was down by 2.9% and the Dow Jones Industrial Average fell 1.9%.
Earlier Monday, Japan’s Nikkei 225 plunged 12.4% for its worst day since the 1987 crash. South Korea’s benchmark Kospi lost 8%. The losses cascaded through Europe, with London’s FTSE 100 down 2% on its worst day of trading since January.
Tech stocks in the U.S. sustained some of the heaviest losses as investors worried that spending on artificial intelligence might not bring results soon. Nvidia Inc. lost more than 6%, Apple was down 4.4% as Berkshire Hathaway cut its stake in the iPhone maker, and Microsoft fell 3.4%.
Investors worldwide reacted to the Labor Department’s report of weaker-than-expected hiring in July. They were concerned that the Federal Reserve had kept interest rates too high for too long to bring down inflation, which soared to a 40-year high under the Biden-Harris administration. The jobless rate in July rose to 4.3%, the highest since October 2021.
Economic anxieties highlighted by the massive sell-off rapidly regained prominence in the presidential campaign.
President Biden, returning to the White House from a weekend at his home in Delaware, didn’t respond to reporters’ shouted questions about the stock market. Vice President Kamala Harris, who quickly captured the Democratic Party nomination after Mr. Biden dropped out of the race, was huddled in meetings with advisers as she prepared to announce her selection of a running mate.
Her Republican opponent, former President Donald Trump, blamed Ms. Harris and the president for the market chaos, signaling the renewed importance of the economy and high prices as campaign themes.
“Of course there is a massive market downturn,” Mr. Trump said on social media. “Voters have a choice — Trump prosperity, or the Kamala crash & great depression of 2024.”
Sen. Tom Cotton, Arkansas Republican, posted on X: “If you think the economy is bad today, putting a San Francisco socialist in charge would make it much worse.”
Ms. Harris has been trying to calibrate her economic message as she takes over the Democratic campaign. “Bidenomics” has not sat well with voters who, despite a good employment picture for the past few years, have faced punishing price increases that canceled out wage gains.
Sen. J.D. Vance of Ohio, the Republican vice presidential nominee, will hold a campaign event in Philadelphia on Tuesday hours before Ms. Harris introduces her running mate to Democratic voters in the city. The Trump campaign gave a preview of Mr. Vance’s visit by saying, “The stock market is crashing because of weak and failed Kamala Harris’ policies. … In weak, failed, and dangerously liberal Kamala Harris’ America, families are struggling to afford the basics and stay safe.”
The Trump campaign said Pennsylvania families have had to pay an average of $958 more per month because of higher prices.
On Wall Street, some traders began wondering whether the damage was so severe that the Fed would have to cut interest rates in an emergency meeting before its next scheduled decision on Sept. 18. The central bank took no action on rates at its meeting last month.
“The Fed could ride in on a white horse to save the day with a big rate cut, but the case for an inter-meeting cut seems flimsy,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Those are usually reserved for emergencies like COVID, and an unemployment rate of 4.3% doesn’t really seem like an emergency.”
Some of Wall Street’s recent declines may also be air coming out of a stock market that has ballooned to dozens of all-time highs this year, in part on a frenzy around AI technology and hopes for coming cuts to interest rates. Critics have been saying for a while that the stock market looked expensive after prices rose faster than corporate profits.
“Markets tend to move higher like they’re climbing stairs, and they go down like they’re falling out of a window,” said J.J. Kinahan, CEO of IG North America. He attributed much of the recent volatility to euphoria about AI subsidies and “a market that was ahead of itself.”
Professional investors pointed to the Bank of Japan’s move last week to raise its primary interest rate from nearly zero. Such a move helps boost the value of the Japanese yen, but it could also force traders to scramble out of deals for which they borrowed money at virtually no cost in Japan and invested it elsewhere around the world.
In some positive economic news Monday, a report said growth for U.S. service businesses was slightly stronger than expected. According to the Institute for Supply Management, growth was led by businesses in the arts, entertainment and recreation industries, along with accommodations and food services. Treasury yields also pared their drops after the better-than-expected data.
Others pointed to second-quarter annualized growth of 2.8% in the U.S., which was much stronger than expected.
For most of the year, investors worldwide drove stock markets higher, convinced that central banks were successfully, if haltingly, getting inflation under control. They were buoyed by a healthy U.S. economy and the promise of artificial intelligence.
By June, Nvidia, the leader in AI chipmaking, had joined Apple and Microsoft as $3 trillion companies. In mid-July, the S&P 500, Nasdaq composite and Japan’s Nikkei 225 had risen to all-time highs. Investors thought the high interest rates implemented by the Federal Reserve were taming inflation without causing a sharp slowdown in the U.S. economy, the world’s largest.
That confidence has taken a hit the past few days. Investors are listening to warnings that Nvidia and other Big Tech stocks have become too expensive and that massive spending on AI might not turn into profits for a while.
As the markets plummeted Monday, several online brokerage firms, including Charles Schwab, Fidelity and Vanguard, appeared to be down for thousands of users.
User reports appeared to peak around and just before 10 a.m. EDT, data from outage tracker Downdectector showed. Some frustrated customers online said that they were unable to log in or access their account balances.
“Due to a technical issue, some clients may have difficulty logging in to Schwab platforms,” Charles Schwab wrote on social media platform X. “Please accept our apologies as our teams work to resolve the issue as quickly as possible.”
By midday, Schwab confirmed that the issue had been resolved.
A Fidelity spokesperson told The Associated Press via email that the company was aware that some customers were experiencing “intermittent issues” earlier in the day but said that had been resolved.
Vanguard did not immediately return a request for comment.
At Charles Schwab’s peak, users reported nearly 15,000 outages around 9:50 a.m. EDT, per Downdetector. Fidelity and Vanguard had 3,800 and 2,900, respectively, closer to 10 a.m. EDT. User reports appeared to fall notably for all three platforms about an hour later.
• Stephen Dinan contributed to this article, which is based in part on wire service reports.
• Dave Boyer can be reached at dboyer@washingtontimes.com.
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