Morning Wrap (05.08.2024)

At the beginning of the new week, we observe a further panic sell-off in the markets. Investors fear that the United States may be heading towards a recession. Capital is flowing away from risky assets, as evidenced by significant declines in indexes in the Asia-Pacific region and in futures contracts on U.S. indexes.

At the time of publication, the probability of a 50 bp rate cut at the September FOMC meeting is already 80.5%. Further 50 bp cuts at the November meeting are priced at 61.4%, and a 25 bp cut at the December meeting. The market is already pricing in a total of 5 full 25 bp cuts this year, suggesting that the Fed was late with rate cuts, and the U.S. is facing a recession by the end of the second half of 2024.

Declines in stock indexes in Japan are comparable to the panic during the Covid-19 pandemic. Nikkei225 (JAP225) futures are down over 9.00% to 31,800 points. Within approximately 3 weeks, the index has fallen by a record 25% from highs above 42,500 points.

Yields on U.S. bonds are also deepening declines below the 4.00% threshold. Yields on 10-year bonds are currently at 3.75%, and 2-year bonds at 3.79%. We observe a return of the yield curve to normal levels, meaning a drop in short-term yields below long-term yields after the curve remained inverted for a record long period since around early 2023.

Other indexes in the Asia-Pacific region are seeing slightly smaller declines compared to the Japanese stock market, but still significant in nominal terms. Chinese and Australian indexes are losing about 2.00%, while futures on the Singapore index SG20cash are down over 4.50%.

European futures also point to a more than 2.00% sell-off at the opening of the cash session on the Old Continent. UK100 is down 1.70%, and DAX is down 2.20%.

Recession fears are pushing oil prices down from over 78 USD to 73 USD over the weekend, more than 8.00%. Today, a 1.20% drop.

The USD is also losing. The USDIDX dollar index notes nearly a 0.40% drop, falling to the lowest level since the beginning of this year, to 102.5000 points. The Japanese yen is the strongest currency, gaining even 2.5-3.0% against other currencies. USDJPY is down 2.50% to 142.8000.

Gold is gaining 0.20% as the only asset, to the level of 2450 USD per ounce.

Cryptocurrencies are experiencing record declines. Bitcoin lost over 10%, briefly falling below 52,000 USD. However, at the time of publication, prices slightly rebounded above 53,000 USD, recording an 8.50% decline.

Ethereum saw a drop of over 15% to 2,150 USD, but currently, prices have also slightly rebounded above 2,300 USD with losses of around 13.30%. The altcoin sector is down 8.00%.

In the first part of the day, we learnt the final service sector PMI data for July from China, Japan and Australia. The data did not proportionally weak to the broader market sentiment.

02:30, Japan - PMI report for July: 

• Services PMI: actual 53.7; forecast 53.9; previous 49.4;

03:45, China - PMI report for July:

• Caixin services PMI: current 52.1; forecast 51.4; previous 51.2;