Portfolio Update – August 2024

General news

• On 01/08/2024, In July Japanese authorities spent 5.53 trillion yen ($36.8 billion) to stabilize the yen, according to data from Japan’s Ministry of Finance covering the period from June 27 to July 29. This intervention followed warnings from Japanese authorities about addressing excessive currency volatility and came after the yen hit a 38-year low against the U.S. dollar. In late May, Japan confirmed its first currency intervention since October 2022. Concurrently, the Bank of Japan raised its benchmark interest rate to “around 0.25%,” its highest since 2008, causing the yen to rise sharply to around 150 per dollar, compared to 161.96 per dollar at the start of the month. The yen has faced ongoing pressure since the BOJ ended its negative interest rate policy in March.
• The Federal Reserve held its benchmark interest rate steady at 5.25% to 5.50% on Wednesday, but Chairman Jerome Powell indicated a possible rate cut in the September meeting as inflation shows signs of easing. Following this news, U.S. stocks rallied, with the S&P 500 climbing 1.58%, the Nasdaq Composite rising 2.64%, and the Dow Jones Industrial Average gaining 0.24%. Nvidia saw a significant increase of 12.8%, its best performance since February, boosted by positive results from Advanced Micro Devices. Boeing also rose 2% despite reporting larger-than-expected losses and weaker revenue while naming a new CEO. Treasury yields fell, and gold prices increased after the Fed’s announcement.
• On 02/08/2024, Strategists advised caution amidst a global stock market sell-off, warning that shares may still be vulnerable to further declines. U.S. stocks fell sharply at the beginning of August due to disappointing economic data, including a significant rise in initial jobless claims and a lower-than-expected ISM manufacturing index, indicating economic contraction. Concerns grew that the Federal Reserve might be too slow in cutting interest rates to prevent a recession. European stocks dropped around 1.6%, and Japan’s benchmark indexes experienced a more than 5% decline, marking the Nikkei index’s worst day in over four years. Cedric Chehab from BMI attributed the market downturn to several factors, including a hawkish stance from the Bank of Japan, poor U.S. manufacturing data, unsettling employment indicators, and volatile major earnings reports, all contributing to an overall market correction.
• Stocks saw a significant decline on Thursday, with the Dow Jones Industrial Average plummeting nearly 500 points as recession fears emerged. The Dow dropped 494.82 points, or 1.21%, to close at 40,347.97, with a session low loss of 744.22 points. The S&P 500 fell 1.37% to 5,446.68, and the Nasdaq Composite slid 2.3% to 17,194.15. The Russell 2000 index, which had been rallying, fell 3%. Concerns over a potential recession were fueled by a significant rise in initial jobless claims and a disappointing ISM manufacturing index reading of 46.8%, signaling economic contraction. This weak data came after the Federal Reserve decided to keep interest rates at their highest levels in two decades, although Fed Chair Jerome Powell hinted at a possible rate cut in September. Tom Fitzpatrick from R.J. O’Brien and Associates noted that recent data has raised concerns that the Fed may have delayed rate cuts for too long. Chris Rupkey of FWDBONDS suggested that the economic downturn might be imminent despite potential rate cuts, as indicated by falling 10-year Treasury yields. Stocks particularly vulnerable to a recession, such as JPMorgan Chase and Boeing, were among the significant losers, with drops of 2.3% and over 6%, respectively.
• The Bank of England has cut its key interest rate to 5%, marking the first reduction in over four years. The decision, which saw a 5-4 vote in favor, was announced by Governor Andrew Bailey, who emphasized a cautious approach moving forward. Previously held at 5.25% since August 2023, the rate change followed a period of uncertainty and a market expectation of a 61% chance for the cut. In response, U.K. gilt yields dropped, with the 10-year yield down over 9 basis points to 3.880% and the 2-year yield falling more than 10 basis points to 3.702%. The Bank also released its quarterly Monetary Policy Report, outlining economic growth and inflation forecasts, with the next policy meeting scheduled for September 19.
• On 03/08/2024, Job growth in the U.S. significantly slowed in July, with nonfarm payrolls increasing by just 114,000, down from the revised 179,000 in June and below the expected 185,000, according to the Labor Department. The unemployment rate rose to 4.3%, the highest since October 2021. Average hourly earnings increased by 0.2% for the month and 3.6% year-over-year, both falling short of forecasts. The labor market, previously a strength in the economy, has shown signs of weakening, with July’s payroll growth well below the 12-month average of 215,000. Following the report, stock market futures declined further, and Treasury yields dropped. Health care led job creation with 55,000 new jobs, followed by construction (25,000), government (17,000), and transportation and warehousing (14,000), while the information services sector lost 20,000 jobs. The household survey was even more dismal, showing growth of just 67,000 jobs and an increase of 352,000 in the number of unemployed, though the participation rate edged up to 62.7%.
• On 05/08/2024, Warren Buffett’s Berkshire Hathaway sold nearly half of its substantial Apple stake last quarter, a surprising move for the typically long-term-focused investor. The conglomerate’s earnings filing revealed that its Apple holdings were valued at $84.2 billion at the end of the second quarter, indicating a reduction of over 49% in its tech stake. Despite this, Apple remains Berkshire’s largest stock investment. This sale is part of a broader trend, with Berkshire offloading over $75 billion in equities during the period, increasing its cash reserves to a record $277 billion. Buffett had previously reduced the Apple stake by 13% in the first quarter, citing tax reasons and suggesting that selling some Apple shares could benefit shareholders if capital gains taxes were raised. However, the scale of the recent sell-off suggests there may be additional factors at play. Apple shares had surged by 23% in the second quarter after addressing investor concerns and providing more details about its artificial intelligence strategy.
• Japan’s stock market confirmed it had entered a bear market as Asia-Pacific markets continued last week’s sell-off, with the Nikkei 225 and Topix indices both dropping over 12%. The benchmark indexes have fallen more than 20% from their all-time highs on July 11. The Nikkei 225 experienced its worst day since Black Monday in 1987, closing at 31,458.42 with a 12.4% loss, wiping out all its gains for the year. The Topix index also fell sharply, closing at 2,227.15 after a 12.23% drop. Major trading houses like Mitsubishi, Mitsui & Co., Sumitomo, and Marubeni saw significant declines, with Mitsui losing almost 20% of its market cap. This followed Friday’s rout when the Nikkei 225 and Topix fell over 5% and 6%, respectively, marking the worst performance for the Topix in eight years and for the Nikkei since March 2020. Additionally, the yen strengthened to its highest level against the dollar since January, trading at 142.09.
• On 06/08/2024, Japan’s stocks experienced a sharp rebound on Tuesday following significant losses in the previous session. The Nikkei 225, which had seen its largest decline since the 1987 Black Monday crash, surged over 10% to close at 34,675.46, marking its largest daily gain since October 2008. The Topix also jumped 9.3% to end at 2,434.21. This rebound brought both indexes back into positive territory for the year. The recovery came after the Bank of Japan’s rate hike on July 30, which had initially pressured stocks by strengthening the yen. Globally, markets were also affected by fears of a U.S. recession due to a weaker-than-expected jobs report and the unwinding of the yen carry trade. Heavyweight trading houses in Japan saw significant gains, with Mitsui up 10.43% and Softbank Group Corp rising 12.06%. Other sectors, such as Japanese automakers and semiconductor suppliers, also rallied, with Suzuki Motor and Renesas Electronics climbing 17.01% and 19.06%, respectively. The yen weakened by 1.45% to trade at 145.6 against the U.S. dollar.
• Investor Cole Smead, CEO of Smead Capital Management, warned that the Federal Reserve has limited options as the global market sell-off continues amid fears of a looming U.S. recession. Smead told CNBC that the Fed is grappling with the effects of extensive fiscal stimulus, which complicates accurate economic assessment. He explained that the Fed is struggling to counteract the impact of federal deficit spending, which is about 7% of U.S. GDP, a problem it didn’t create. Despite Fed Chair Jay Powell’s efforts to address this issue with monetary policy, Smead believes it’s fundamentally a fiscal problem. The market turmoil extended on Monday, with U.S. futures reflecting losses in Europe and Asia following a disappointing jobs report for July and rising unemployment, which heightened recession concerns. The Cboe Volatility Index (VIX) surged to its highest level since October 2020. Investors worry that the Fed has been too slow to cut interest rates after raising them to combat Covid-19 era inflation. Although the Fed kept rates steady last week, markets now predict a 70% chance of a 50 basis-point cut in September to prevent a downturn.
• Gold prices dropped over 1% on Monday amid a global market sell-off driven by mounting economic concerns, although analysts suggest this decline may be temporary for the safe haven asset. Spot gold, which fell as much as 3.2% earlier in the session, reduced some losses to trade 1.6% lower at $2,404.53 an ounce by 14:00 p.m. ET. U.S. gold futures settled 1% lower at $2,444.4, while spot silver declined 5.1% to $27.10. The market sell-off, triggered by fears of a U.S. recession following weak economic data, affected Wall Street and rippled through global markets. Jim Wycoff, a senior analyst at Kitco Metals, noted that spooked investors were selling off gold and silver. The sell-off also impacted autocatalysts platinum and palladium, with platinum falling 4.9% to $911.10 and palladium dropping 5.7% to $839.50, the lowest since August 2018. Despite being considered a safe refuge during uncertainties, gold was not immune to the broader market pressure. David Meger of High Ridge Futures highlighted that risk assets across the board, including gold, were under significant pressure. In contrast, Treasury bonds saw increased demand, with U.S. 10-year yields reaching their lowest since mid-2023 due to worsening recession fears following a dismal July payrolls report.
• The Reserve Bank of Australia (RBA) has maintained interest rates at 4.35%, following significant market volatility that erased billions from the global economy. During its two-day meeting, the RBA board decided to keep the official cash rate unchanged despite concerns about persistently high inflation. This marks the sixth consecutive time rates have been held steady since November 2023. RBA Governor Michele Bullock emphasized that the current cash rate aligns with the economic conditions but cautioned that inflation remains excessively high. She indicated that there is considerable uncertainty regarding the economic outlook and the risk of prolonged inflation. Bullock also noted that a rate cut is unlikely in the near future, stressing the importance of achieving a better balance between demand and supply to manage inflation effectively. She acknowledged the challenges faced by households and small businesses due to the high interest rates but underscored the necessity of these measures to stabilize the economy.
• On 07/08/2024, Bank of Japan Deputy Governor Shinichi Uchida stated on Wednesday that the central bank will not raise interest rates during periods of financial market instability. Uchida noted that the recent strengthening of the yen impacts the BOJ’s policy decisions by reducing the upward pressure on import prices, which in turn affects overall inflation. He also highlighted that stock market volatility influences the central bank’s decisions by affecting corporate activity and consumer behavior. Speaking to business leaders in Hakodate, Uchida emphasized the need to maintain the current levels of monetary easing amidst sharp financial market volatility. He mentioned that the BOJ’s interest rate strategy would change if market volatility alters its economic and price outlook, risk assessment, and the likelihood of achieving a stable 2% inflation target. “We won’t raise interest rates when financial markets are unstable,” Uchida reiterated.
• The United States will commence a Treasury buyback program, targeting $50 billion in Treasury securities by the end of October. The plan begins with an $8.5 billion buyback in August, followed by $31.5 billion in September, and $10 billion in October. This initiative aims to manage the bond supply and enhance market liquidity. Concurrently, there is widespread speculation about an emergency interest rate cut by the U.S. Federal Reserve. Wharton’s Professor Jeremy Siegel has advocated for a 75 basis point cut immediately, with an additional 75 basis point reduction in September, suggesting the current Fed funds rate should be between 3.5% and 4%. Siegel criticized the Fed for inaction despite improvements in inflation and employment. Financial analyst Robert Prechter also anticipates an emergency rate cut, predicting the Fed will act before its scheduled September meeting due to recent market volatility.
• On 09/08/2024, China’s consumer prices increased by 0.5% in July compared to the previous year, surpassing expectations due to a significant rise in pork prices, according to the National Bureau of Statistics. This marks the highest CPI increase since February, when prices rose by 0.7%, partly driven by the Lunar New Year. Pork prices, which heavily influence the CPI, surged by 20.4% year-on-year, the largest jump since December 2022. Core CPI, excluding food and energy, grew by 0.4%, down from June’s 0.6%. Despite the rise, economists, like Lynn Song of ING, believe that inflation trends won’t hinder further monetary easing, especially given weak credit activity and low inflation. Additional rate cuts are anticipated this year. Factors such as a price war in the auto industry, declining smartphone prices, and lower rents are exerting downward pressure on non-food prices. Meanwhile, tourism prices increased by 3.1% in July, and education and entertainment costs rose by 1.7%, both below their year-to-date averages. Transportation fuel prices increased by 5.1%, while the cost of “transportation tools” fell by 5.6%.
• Initial claims for unemployment insurance totaled 233,000 last week, which was lower than the expected 240,000 and marked a decline of 17,000 from the previous week’s revised figures, according to the Labor Department. Despite this, continuing claims rose slightly to 1.875 million, the highest level since November 2021. While jobless claims have been gradually increasing throughout the year, disruptions from Hurricane Beryl and seasonal shutdowns at auto plants have been contributing factors. Although the four-week average of claims reached its highest in nearly a year, the latest data helped alleviate some concerns about the labor market’s weakening, prompting a positive shift in stock market futures. However, economist Robert Frick noted that additional signs of labor market weakness would need to be found elsewhere.
• On 13/08/2024, Australian wages rose at their slowest pace in a year during the June quarter, with the wage price index increasing by 0.8%, slightly below market expectations of 0.9%. This slowdown, particularly in the private sector where wage growth hit a low of 0.7%, suggests that the labor market may be cooling as the jobless rate rises in response to high interest rates. Although annual wage growth held steady at 4.1%, experts like Sean Langcake from Oxford Economics Australia noted that wage pressures are subsiding, which might relieve the Reserve Bank of Australia (RBA). However, the current wage growth is still seen as too strong for inflation to quickly return to the RBA’s target range of 2-3%. The RBA, which has kept its cash rate steady at 4.35% since November, is expected by some economists to cut rates early next year, as inflation remains above target. Despite this, the overall wage increase has slightly outpaced inflation, marking a return to real pay growth for Australians. Additionally, incomes are expected to rise further due to recent tax cuts that began in July.
• On 14/08/2024, The Reserve Bank of New Zealand (RBNZ) unexpectedly lowered its cash rate by 25 basis points to 5.25% on Wednesday, marking its first rate cut since March 2020. This decision surprised economists who had anticipated the central bank would maintain the rate at 5.5%. The RBNZ cited that consumer price inflation is trending back toward its target range of 1% to 3%, with various inflation measures aligning with a stable, low-inflation environment. Although service inflation remains elevated, the RBNZ expects it to decline, with overall inflation projected to stay near 2% in the foreseeable future. The pace of further rate cuts will depend on the bank’s confidence in maintaining low inflation and anchored expectations. Additionally, the RBNZ revised its benchmark rate forecast, now expecting it to drop to 4.92% by December, suggesting potential additional rate cuts this year. The forecasted rate trajectory has also been significantly reduced for the coming years, with expected rates lowered to 4.92% by December 2024 and 3.85% by December 2025, compared to previous estimates.
• A key measure of U.S. wholesale inflation, the Producer Price Index (PPI), rose by just 0.1%, which was below the expected 0.2% increase. The core PPI, which excludes volatile food and energy prices, remained flat. This lower-than-expected rise in wholesale prices strengthens the possibility that the Federal Reserve may consider lowering interest rates in the near future. On a year-over-year basis, the headline PPI increased by 2.2%, down from 2.7% in June. Despite a 0.6% jump in final demand goods prices driven largely by a 1.9% surge in energy costs, particularly gasoline, the overall inflation reading was muted due to a 0.2% decline in services prices. The decline in trade services prices, along with falling margins in machinery and vehicle wholesaling, offset some of the upward pressure from energy costs. Following the release of this data, stock market futures rose and Treasury yields fell.
• In July, U.K. inflation increased to 2.2%, slightly below the expected 2.3% but surpassing the Bank of England’s 2% target. The rise, mainly driven by higher housing and household services costs, came as gas and electricity prices fell less than they did a year earlier. Core inflation dropped to 3.3%, and services inflation eased to 5.2%. Following this data release, the British pound weakened, trading at $1.2831. The inflation report followed a BOE rate cut to 5%, the first in over four years, amid slower wage growth and a dip in unemployment. While inflation may rise again in late 2024, there is uncertainty about further rate cuts, though some analysts suggest the BOE could continue easing rates this year.
• On 15/08/2024, In July, inflation rose as expected, largely due to higher housing costs, according to a Labor Department report. The consumer price index (CPI) increased by 0.2% for the month, bringing the annual inflation rate to 2.9%, just below the forecasted 3%. Core CPI, which excludes food and energy, also rose by 0.2% monthly and 3.2% annually, in line with expectations. Despite soft food inflation, certain categories, such as eggs, saw significant price increases. Inflation is gradually returning to the Federal Reserve’s 2% target, and producer prices showed only a modest 0.1% rise in July. Fed officials have hinted at rate cuts, with futures markets expecting a potential quarter-point reduction in September and further cuts throughout 2024. However, analysts believe the data suggests no urgent need for a larger cut.
• On 16/08/2024, China’s financial risks, including local government debt, have declined, according to People’s Bank of China Governor Pan Gongsheng. In interviews with state media, Pan emphasized that the financial system is sound and that risks have notably decreased, particularly for local government financing platforms (LGFVs), which have seen debt levels and costs drop significantly. LGFVs emerged to fund infrastructure projects, often relying on shadow banking with limited regulatory oversight, which led to mounting debt. Coordinated efforts over the past year have helped ease repayment pressures and boost market sentiment, though LGFV debt remains a significant challenge. Despite these improvements, China’s slowing economic growth, which reached 5% in the first half of the year, raises concerns about meeting the full-year growth target without further stimulus measures.
• On 19/08/2024, Goldman Sachs has revised its U.S. recession forecast to 20%, down from the 25% it predicted earlier this month following disappointing labor market data. Initially, the lower-than-expected growth in nonfarm payrolls in July raised concerns, pushing Goldman to hike its recession probability. However, stronger-than-expected retail sales and lower unemployment claims prompted the bank to lower its forecast again. Goldman noted that other G10 economies, including Canada, have seen unemployment increases without entering a recession. The upcoming U.S. jobs report could further reduce the recession probability back to 15%.
• On 20/08/2024, A recent New York Federal Reserve survey indicates growing weaknesses in the U.S. labor market, with a significant rise in job seekers, increased concerns over job security, and dissatisfaction with wages and benefits. The survey, which measures labor activity and worker sentiment, showed that only 88% of workers retained their jobs since March, the lowest since 2014, and a record 28.4% reported job searching in the past month. Wage satisfaction declined to 56.7%, and more people now expect to work past retirement age. Meanwhile, wage offers for full-time jobs dipped slightly, and workers’ minimum acceptable wage level, the “reservation wage,” rose to $81,147. Amid a rising unemployment rate, which now stands at 4.3%, and slowing job growth, concerns over the broader economic outlook are intensifying.
• On 22/08/2024, The recent 818,000-job downward revision in U.S. payrolls has sparked debate about whether it signals an impending recession, but the broader economic indicators suggest otherwise. Unlike in 2009, when a similar revision coincided with a declared recession, rising jobless claims, and negative GDP, the current data shows no recession declaration, stable jobless claims, and eight consecutive quarters of positive GDP growth. While the revision indicates job growth was overstated by 68,000 per month, bringing the average down to 174,000, this adjustment appears more reflective of a softening labor market than a deep economic downturn. How the Bureau of Labor Statistics allocates the revision across the year will clarify its impact, but for now, it remains an outlier compared to other data.
• On 23/08/2024, Federal Reserve officials at their July meeting discussed the possibility of an interest rate reduction, signaling that a cut in September was increasingly likely, according to minutes released on Wednesday. Although all members of the Federal Open Market Committee voted to hold rates steady, many acknowledged that continued progress on inflation and rising unemployment could justify a rate cut. Some members even supported a 25-basis-point cut during the July meeting. The minutes highlighted officials’ growing confidence that inflation was moving closer to the 2% target and suggested that further disinflationary pressures would persist. Additionally, concerns over potential overstatements in payroll gains were noted, with recent data indicating job growth may have been overstated by over 800,000.
• On 25/08/2024, Robert F. Kennedy Jr. has ended his independent presidential campaign and endorsed former President Donald Trump during a speech in Arizona. Kennedy, known for his environmental work and anti-vaccine advocacy, criticized the Democratic Party for abandoning democracy and alleged conspiracies that hindered his campaign. He expressed that he no longer saw a viable path to victory and highlighted common causes with Trump, such as free speech and opposition to the war in Ukraine. Kennedy also portrayed both himself and Trump as victims of ongoing legal battles led by Democrats, framing his endorsement as a move aligned with his principles.
• Stock futures were mixed on Tuesday, following a downturn in technology stocks that weighed on the S&P 500 and Nasdaq Composite, while the Dow Jones Industrial Average hit a record high. Dow futures rose by 65 points (0.16%), but S&P 500 futures fell 0.32%, and Nasdaq 100 futures dropped 0.85%. The Dow reached a new intraday high on Monday, though it pulled back slightly by the close, while tech stocks slid and energy stocks gained, indicating a potential shift away from the dominant tech sector. Investors are awaiting Nvidia’s earnings on Wednesday, as the AI giant’s performance will serve as a key indicator for the tech market. Optimism grew after Federal Reserve Chair Jerome Powell hinted at potential rate cuts, expected to begin at the central bank’s September meeting. Investors are also watching Nordstrom’s earnings for consumer health insights.
• On 29/08/2024, Global chip stocks experienced a decline on Thursday following Nvidia’s fiscal second-quarter results, which, while surpassing analyst expectations, fell short of traders’ hopes for even higher growth rates. In Asia, chipmakers SK Hynix and Samsung Electronics, both key suppliers to Nvidia, led the losses. SK Hynix, a manufacturer of high bandwidth memory chips for Nvidia’s AI applications, dropped 5.4%, while Samsung Electronics, the largest stock on South Korea’s Kospi index, fell over 3%. Other Nvidia suppliers, such as Taiwan Semiconductor Manufacturing Company and Foxconn, also saw stock losses of around 2% and 1%, respectively.