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Strong Drop and Strong Recovery in the Markets
We had a week that began with a Black Monday after the Bank of Japan decided to raise interest rates for the first time in 30 years, from 0% to 0.25%. This triggered significant panic in the markets.This situation highlights the carry trade we discussed in a YouTube video. Essentially, investors were obtaining loans at extremely low rates (0%) and investing in T-bills and other riskier assets that offered higher yields. However, when there is a change after 30 years, and rates rise—even if only to 0.25%—it suggests a shift in trend. As a result, investors begin to reallocate their debt in response to the rate hike and start selling. This selling pressure forces other financial operators to rebalance their portfolios, leading to further selling and creating a snowball effect.Following the largest single-day drop in the SP500 since 2022, the index made a strong recovery, marking the biggest rise since 2022 as well. It’s important to note that, unlike Japan, the U.S. is looking to lower interest rates.
Profitus Trader
August 09, 2024
MOTIVATION
Quote of the week
"The bamboo that bends is stronger than the oak that resists."
-Confucio-
Week of 05/08/2024
What You Need to Know This Week
The week started off bleak with market fears stemming from Japan's interest rate hike from 0% to 0.25%.
Volatility levels reached those not seen since 2008.
In the U.S. market, there was a scare, but it rebounded strongly afterward.
The S&P 500 experienced its largest one-day drop since September 2022.
The Nasdaq erased $1 billion in market value.
The Nikkei index fell 12%, marking its worst decline since 1987.
An emergency rate cut was requested following this week's drop, but conditions are not extreme enough to warrant such action.
On Wednesday, markets rebounded strongly.
There is a 75% chance of a 50 basis point rate cut in September.
Nvidia leads the "Magnificent Seven" with a 36% gain, followed by Amazon at 34%.
The 10-year Treasury yield is at 3.981%, rising by 3 basis points.
The U.S. has surpassed China as Germany's largest trading partner.
The unemployment report was below estimates, with 233k jobs added vs. 240k expected, leading to the S&P 500's best day since November 2022, the Dow gaining 680 points, and the VIX dropping 15% (though it remains elevated).
Trump wants a president who can influence interest rates.
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Economic Calendar 12/08/2024
Economic Events
Time (NY) | Event | Influence |
|---|---|---|
Monday | 12:00 | |
1-Year Inflation Expectations from the NY Fed (Jul) | High | |
Tuesday | 09:30 | |
Core PPI (MoM) (Jul) | High | |
Core PPI (YoY) (Jul) | High | |
PPI (MoM) (Jul) | High | |
PPI (YoY) (Jul) | High | |
Wednesday | 09:30 | |
Core CPI (YoY) (Jul) | High | |
Core CPI (MoM) (Jul) | High | |
CPI (MoM) (Jul) | High | |
CPI (YoY) (Jul) | High | |
Thursday | 09:30 | |
Empire State Manufacturing Index (Aug) | High | |
Philadelphia Fed Manufacturing Index (Aug) | High | |
Core Retail Sales (MoM) (Jul) | High | |
Retail Sales (MoM) (Jul) | High | |
Continuing Jobless Claims | High | |
Industrial Production (MoM) (Jul) | High | |
Friday | 11:00 | |
1-Year Inflation Expectations from Michigan (Aug) | Medium | |
Michigan Consumer Sentiment (Aug) | High |
We can see that next week will be active with data on unemployment, CPI, and inflation expectations. Stay alert!
Random
Random fact of the week
Did you know that in Japan, there are cafes where you can pay to sleep? They are called "nap cafes" and are a popular solution for workers who need a short break during their workday.
Art
Ilustration of the week
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Disclaimer: This is not an investment recommendation. All information is provided for entertainment purposes only.
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