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China Fund News Jiangyou

Unprepared, the Japanese stock market suddenly plunged, and the Nikkei index plunged more than 7% after opening, falling more than 2,500 points. It fell 20% from its high in July.

The circuit breaker mechanism of Japan's Topix index was triggered. The circuit breaker mechanism of Japanese government bond futures was also triggered.

U.S. stocks continued to fall sharply last Friday, and Asia-Pacific stocks continued to fall this morning. The market is more worried that the Federal Reserve will delay taking action on the slowdown of the U.S. economy, and the decline of Japanese stocks has intensified. The yen and Japanese government bonds rose as investors bet that the Bank of Japan will continue to raise interest rates.

The Japanese yen exchange rate continued to rise.

The minutes of the Bank of Japan's June policy meeting showed that one member said the Bank of Japan must not hesitate to raise interest rates at the right time; several members said that the decline in the yen pushed up import prices and triggered an upward risk of inflation. The meeting also showed that the weakness of the yen posed an upward risk to prices, and short-term exchange rate fluctuations should not influence policy. If the economic outlook given in April becomes a reality, then the Bank of Japan should raise interest rates. ‍ ‍ ‍ ‍

Stock markets in South Korea and Australia also fell sharply.

Data released last Friday showed that U.S. nonfarm payrolls recorded the weakest level since the epidemic, and the unemployment rate rose to 4.3% for the fourth consecutive month, higher than the Federal Reserve's year-end forecast, triggering a closely watched recession indicator.

U.S. stock futures also continued to fall.

According to the summary of securities firms, the specific overseas blockbuster news is as follows:

1. On July 31, the Federal Reserve announced after the FOMC meeting that the target range for the federal funds rate would remain at 5.25% to 5.50%, in line with market expectations. However, it also sent a signal that interest rates may be cut in September. That is, the Federal Reserve further confirmed that it had made progress in reducing inflation. In addition to inflation, it began to emphasize the need to avoid employment risks.

2. On the same day, the Bank of Japan announced its latest interest rate decision, announcing a 15 basis point rate hike, raising the policy rate to 0.15%-0.25%, which exceeded market expectations. At the same time, the Bank of Japan announced a balance sheet reduction plan, reducing the scale of government bond purchases by 400 billion yen each quarter. It will no longer provide a bond purchase range but a specified amount, which is lower than the previous expectation of a 1 trillion yen reduction per month. The Nikkei index fell sharply the next day, while the yen exchange rate soared.

3. The US ISM manufacturing index in July was 46.8, expected to be 48.8, and the previous value was 48.5. This is the worst data since 2009 during the non-COVID-19 period, and new orders were also lower than expected.

4. The US non-farm payrolls report for July surprised the market. In July, non-farm payrolls increased by 114,000, the lowest since December 2020, far below the expected 175,000, and a sharp drop from the previous value of 206,000 (revised down to 179,000); the unemployment rate rose to 4.3%, the highest since October 2021, exceeding the expected 4.1%; wage inflation continued to cool, with hourly wages rising by 0.2% month-on-month in July, slightly lower than the expected and previous value of 0.3%, and up 3.6% year-on-year, with an expected 3.7% and a previous value of 3.9%. The unemployment rate triggered the Sam Rule, a recession indicator with an accuracy rate of 100% (meaning that a recession has begun). After the data was released, the three major U.S. stock index futures, the U.S. dollar index and Treasury yields fell rapidly, and panic spread rapidly. Traders began to bet on the possibility of a 50 basis point rate cut in September and predicted that the rate cut this year would exceed 110 basis points.

5. Intel's revenue in the second quarter did not increase but fell by 1% year-on-year, and the third quarter guidance was as high as 11% decline, and EPS guidance unexpectedly turned from profit to loss; Intel plans to cut costs by $10 billion in 2025 and will lay off about 15,000 people, most of which will be completed this year; starting from the fourth quarter, dividends will be suspended for the first time since 1992; Intel plummeted 26% after the data was released. Coincidentally, Amazon's revenue and operating profit growth slowed to 10% and 91% respectively in the second quarter, still higher than expected, but its third quarter revenue guidance is at least 8%, which will be the lowest growth rate in more than a year and a half, and the operating profit guidance is much slower than expected, with the lowest increase of less than 3%. The market is increasingly concerned that the scale of its investment in AI services will exceed expectations and affect profits.

6. Last Thursday, the Bank of England announced a 25 basis point interest rate cut to 5%, in line with market expectations. This was the first interest rate cut by the Bank of England since early 2020.

Editor: Captain

Review: Muyu

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