news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

The "hottest trade" of the past two years has seen a reversal. As market expectations of the Federal Reserve's rate cuts, AI and earnings have been overturned, the yen and renminbi have surged, carry trades have collapsed, and AI concept stocks have been sold off violently.

According to media summary, first of all, in the bond market and foreign exchange market, with the slowdown of the US economy and the "hawkish tone" of the Bank of Japan, expectations for a narrowing of the US-Japan interest rate gap have increased. Investors are scrambling to reallocate funds, carry trades have reversed, and the yen and renminbi have seen a sharp rise.

Before giving up gains during the intraday trading on Thursday, the yen hit a new intraday high against the dollar for more than two months for the second consecutive day, and also appreciated to varying degrees against the euro and the pound. The dollar hit a low against the yen since May 3 for two consecutive days, and fell nearly 1.3% yesterday.

As the yen carry trade reversed, the RMB carry trade also reversed. The offshore RMB soared 600 points, approaching the 7.2 mark at one point, marking the largest intraday increase since September last year.

U.S. Treasury yields are close to ending their inversion. On Thursday, the two-year Treasury yield was only 12 basis points higher than the 10-year yield, the closest to ending the inversion since mid-2022, and a far cry from the spread of more than 50 basis points a month ago.

Wall Street News previously mentioned that the unexpected contraction of the S&P Global Manufacturing PMI in July released on Wednesday added to the signs of a slowdown in the U.S. economy, and the market speculated that the Federal Reserve would cut interest rates faster and more significantly. Weak U.S. consumer spending also contributed to this shift, and weak consumption was also reflected in disappointing corporate earnings reports. At the same time, there were media reports that the Bank of Japan may consider raising interest rates at next week's interest rate meeting. The two pieces of news together pushed up expectations for a narrowing of the U.S.-Japan interest rate gap.

At the same time, U.S. stock investors began to doubt whether the large-scale investments of technology companies in AI could pay off quickly, so they frantically sold popular AI concept stocks such as Nvidia and Broadcom.

Investors continued to sell technology stocks overnight, and the Nasdaq fell for three consecutive days. The chip stock index fell by 4% and then halved. The Nasdaq has fallen nearly 9% from its historical high on July 10, and its market value has evaporated by 2.3 trillion US dollars.

Pessimistic expectations about demand and the technology industry are also reflected in the metals market. Investors who previously bought copper on concerns about tight supply and rising demand from data centers are now worried about rising inventories and slowing demand.

London copper closed down for eight consecutive trading days, falling below the $9,000 mark for the first time since early April, and falling about 20% from the record high set two months ago.

Aluminum prices hit a four-month low this week before rising.

The initial value of U.S. GDP growth in the second quarter released on Thursday was stronger than expected. Even so, it did not alleviate investors' concerns about the future outlook. Louis-Vincent Gave, CEO of Gavekal Research, wrote in a report to clients:

It does appear that popular trades that had reached “silly levels” in valuation have begun to unwind.

Torsten Slok, chief economist at Apollo Global Management, told clients on Thursday:

If the economy begins to slow, the speed of the slowdown will be critical. If it slows too quickly, it will have a negative impact on corporate earnings and increase the likelihood of declines in stock and credit markets.

James Athey, portfolio manager at Marlborough Group, believes that anything other than the most optimistic forecasts for future growth, earnings and monetary policy is increasingly unable to justify the valuation of blue-chip technology stocks, and this extreme situation is inevitably unsustainable.