Day: August 6, 2024

Vice President Kamala Harris has officially become the Democratic Party’s presidential nominee, securing 99% of the delegate votes in a virtual roll call that concluded on Monday night.

In a strategic move, Harris has selected Minnesota Governor Tim Walz as her running mate. According to analysts at UBS, this decision brings a popular governor with legislative experience to the ticket, aimed at bolstering her chances in what the bank’s analysts describe as a “close presidential election.”

They note that Governor Walz, who has been serving as Minnesota’s 41st governor since 2018 and was re-elected in 2022, previously represented Minnesota’s first congressional district in the US House of Representatives from 2007 to 2019.

He is a Nebraska native, retired teacher, and former non-commissioned officer in the US Army, Walz’s appeal lies in his ability to win elections in conservative-leaning districts, a factor likely considered by Harris to widen her electoral base.

UBS says Presidential nominees typically select their running mates based on various strategic factors such as regional, gender, racial, or age diversity.

The bank believes Harris’s choice of Walz, who joined the vice-presidential selection process late but garnered support from both progressives and moderates, reflects a calculated effort to attract a broader electorate, contrasting her San Francisco political roots.

UBS analysts note that the race has tightened significantly in the past five weeks, following President Biden’s decision to withdraw from the race and Harris’s subsequent nomination.

They state that former President Trump no longer holds a clear polling advantage in critical swing states, with narrow margins between candidates within the margin of error. With three months remaining until Election Day, UBS concludes that the election is “too close to call,” indicating a highly competitive race ahead.

The Federal Reserve will recalibrate its approach in response to recent economic data but stop short of an aggressive policy shift, Barclays strategists said in a Monday note.

The recent U.S. jobs report showed slower job growth across most sectors, a drop in aggregate hours, and a higher unemployment rate. Despite these signals, the investment bank believes the fundamentals of the U.S. economy remain solid. Key metrics such as domestic final sales, retail sales, and personal income continue to show strength, supporting the view that the economy is not on the brink of recession.

“If the Fed had known about this report a week ago, they might have eased in July,” the report notes, but adds that the bond market’s response has already partially fulfilled the Fed’s job, with 10-year yields rallying 40 basis points last week. Both Federal Reserve officials Barkin and Goolsbee have advised against overreacting to the jobs data.

The bank also highlights the importance of upcoming data, with two Consumer Price Index (CPI) reports and another payroll report due before the September Federal Open Market Committee (FOMC) meeting. Barclays finds it unlikely that the Fed will make any drastic intra-meeting cuts.

“An intra-meeting cut strikes us as highly irregular; short of an imminent financial crisis, it seems very unlikely,” strategists noted.

Following the surprisingly weak jobs report, the market has priced in a 50-basis point cut for September, with options indicating a 20% chance of a 75-basis point cut and a 25% chance of 150 basis points in cuts by year-end.

However, Barclays holds a different view, expecting the Fed to proceed more cautiously, cutting 25 basis points at each meeting starting in September, totaling 75 basis points by the end of the year.

“We don’t expect Fed officials to push back on pricing this week, even if markets now have 128bp in cuts this year,” strategists said. “Rather, we think the Fed will depend on data to do that job; if the economy holds up as we (and it) expect.”

Bitcoin experienced a 13% drop over the weekend as global equity markets reacted to U.S. recession fears and dislocation in the Yen markets.

According to Bernstein analysts, “Bitcoin’s initial reaction as a ‘risk off’ asset is not surprising.”

They note that this pattern has been observed before, such as during the March 2020 flash crash, especially since Bitcoin is the only market trading over the weekend.

Despite the recent downturn, Bernstein remains optimistic about Bitcoin’s future. They argue that if rate cuts and monetary liquidity become the typical response to U.S. recession fears, “we expect ‘hard assets’ such as Bitcoin (Digital Gold) to reprice up.”

They add that unlike previous cycles when investing in Bitcoin was more challenging through crypto exchanges, Bitcoin ETFs are now live and highly liquid, trading approximately $2 billion a day.

Bernstein also highlights Bitcoin’s association with political dynamics, referring to it as a “Trump trade” due to the crypto market favoring Trump as a crypto-friendly candidate.

“Bitcoin remains a ‘Trump trade’, in view of crypto market favouring Trump as the crypto-friendly candidate,” they write. “It’s not surprising that as the Polymarket odds between Trump and Harris narrowed, Bitcoin and crypto have traded weak.”

They expect Bitcoin and crypto markets to remain range-bound until the U.S. elections, influenced by catalysts like the Presidential debate and the final election outcome.

Bernstein also notes that Ethereum ETFs have seen significant inflows, almost $1.2 billion in two weeks, though outflows from Grayscale’s ETHE have offset these gains.

Overall, Bernstein believes the Bitcoin and crypto markets will likely trade based on macro and election cues for most of Q3 2024. They suggest that investors seeking exposure to a “Trump trade” can consider adding Bitcoin or Bitcoin equities.

If broader equity markets recover due to a Fed response, Bernstein expects Bitcoin and crypto markets to follow suit.

Global equities took a significant hit on Monday, with Japan’s Nikkei and Topix each plummeting 12% on the day, pushing the latter into bear market territory.

The U.S. market also suffered as a string of weak US economic data came to a climax following a surprisingly soft jobs report. The S&P 500 fell 3% to 5,186, the lowest closing price since May. 

“The markets now seem to believe that high rates and strong growth cannot coexist indefinitely,” Citi strategists said in a note.

Disappointing economic data has dashed “soft landing” expectations, leading to an aggressive repricing of Federal Reserve policy. Citi economists now believe the Fed will implement consecutive 50 basis points rate cuts in September in November to support a slowing economy.

Longer-term bond yields have also responded. US 10-year bond yields are notably lower than their April peaks, and the US yield curve has almost returned to normal.

“The good news is that markets have now priced in more realistic EPS outcomes, with a buffer for EPS downgrades in Europe excluding UK, and Japan. However, positioning has only started to come off, with risks tilted to further unwind,” strategists continued.

Citi highlighted that its Bear Market Checklist, which had 8.5 out of 18 red flags at its recent peak, suggests buying into market weakness. Still, strategists said they prefer to wait for evidence of a more complete positioning unwind and a potential stabilization in earnings momentum before doing so.

Against the current backdrop, Citi has recently increased the defensiveness of its global equity strategy, upgrading the US to Overweight and the UK to Neutral. They have also upgraded global Communication Services to Overweight and Consumer Staples to Neutral.

For those concerned about continued volatility, strategists suggest that cheap defensiveness can be found in the UK.

Shares in Apple (NASDAQ:AAPL) slid 4.8% on Monday, underperforming the broader S&P 500 and Nasdaq Composite indexes. The drop was driven by news that Warren Buffett had sold 50% of his stake in Apple, adding to the pressures on the iPhone maker during an already tough session for tech stocks.

Analysts at Bernstein said the magnitude of the sell-down by Buffet “is curious,” with any future sales “likely to present a much more benign headwind.”

“While he continues to publicly sing the praises of Apple as a business, Buffett has historically been fairly valuation sensitive, adding to his AAPL position at closer to 20x earnings, and trimming at >30x,” analysts noted.

“If Buffett were to lower his position further to the size of his second largest position (BofA) by year-end, it would amount to ~2% of daily trading volume for the stock.”

Moreover, analysts discussed the latest developments in the Department of Justice’s (DOJ) case against Google (NASDAQ:GOOGL). Notably, a federal judge ruled Monday that Google has violated US antitrust law with its search business, stating the tech giant is “a monopolist, and it has acted as one to maintain its monopoly.”

The judge’s decision against Google and its illegal practices – including the company’s relationship with and $20 billion annual payments for default search to Apple – appear threatening. However, Bernstein notes that the final resolution “appears years away.”

“We think a choice screen is a plausible end state, with similar take rates for AAPL as today; and Apple could potentially introduce its own search engine as a choice, which could ultimately be accretive to today’s ISA,” analysts added.

Lastly, Bernstein said Apple is likely to be impacted by recent negative macro headwinds, especially since less than 10% of its revenues are recurring. Still, analysts believe the stock’s fortunes “are most dictated by the strength of its product offerings and associated upgrade rate.”

“We continue to believe that the iPhone 16/17 are likely to be strong iPhone cycles, given AI functionality and lengthening replacement cycles over the last several years,” they wrote.

Retail investors were aggressive net sellers on Monday following the sharp equities pullback, with most of the selling occurring in the first hour of trading, JPMorgan strategists noted.

The retail order imbalance ended the day at -$1 billion, which is -2.5 standard deviations below the 12-month average. Inflows into ETFs of $472 million were outweighed by outflows from individual stocks at -$1.4 billion.

Institutional investors, on the other hand, bought the dip with +$14 billion in net buying (+2.9 standard deviations above the 12-month average) during market hours and -$6.7 billion in Market on Close (MOC) trades.

There was also strong demand for S&P ETFs, JPMorgan said, indicated by a $430 million inflow into Vanguard S&P 500 ETF (NYSE:VOO), SPDR® S&P 500 (NYSE:SPY), and iShares Core S&P 500 ETF (NYSE:IVV), which were +7.6, +1.2, and +2.6 standard deviations above their respective 12-month averages.

In contrast, retail investors were significant sellers of Nasdaq 100 ETFs. Fixed-income ETFs also saw bearish flows, led by TMF and SPDR® Bloomberg 1-3 Month T-Bill ETF (NYSE:BIL).

Strategists pointed out that the current downtrend has not altered Retail’s longer-term positioning.

“We estimate retail investor performance has declined by 10% since the peak in US equities as of today (vs. 8.5% drop in the S&P). Year-to-date, their portfolio is down by -4.9%,” they wrote.

U.S. stocks experienced significant losses on Monday, with the Nasdaq and S&P 500 each dropping over 3%. The drop continued last week’s sell-off driven by recession fears and a sharp decline in Apple shares (NASDAQ:AAPL) after a major investor reduced its stake.

All three major indexes recorded their largest three-day percentage declines since June 2022, with the Nasdaq and S&P 500 hitting their lowest points since early May.

The fears of a recession rattled global markets, prompting investors to exit risky assets following weak economic data, including Friday’s disappointing U.S. payroll report.

Investors are concerned that the economy is slowing faster than expected and that the Federal Reserve may have made a mistake by keeping interest rates steady at its last policy meeting.

Morgan Stanley analysts maintain that the U.S. economy is not experiencing a slump, despite the market’s aggressive pricing of Federal Reserve rate cuts following recent jobs data.

The investment bank said in its Global 360 note on Tuesday that it continues to predict 75 basis points of cuts this year, aligning with its view that “the economy is not slumping.”

While their forecast for three rate cuts initially seemed ambitious compared to market expectations, they note that recent trends in non-farm payrolls and core PCE inflation have brought this projection into clearer focus.

Consumer growth is slowing from approximately 3% in the second half of 2023 to below 2% in the latter half of 2024. Morgan Stanley analysts believe this deceleration is essential for demand to soften and allow inflation to cool.

The bank says it will monitor consumption closely but does not anticipate a more significant slowdown.

Meanwhile, Morgan Stanley also noted that in July, the yen appreciated rapidly, validating its out-of-consensus prediction for a 25 basis point hike by the Bank of Japan (BoJ).

“Our call was built on the changing structural foundations taking place in Japan as well as a final step to exit NIRP,” they wrote.

The bank’s analysts said the tone of the BoJ’s press conference suggests that the risks to their forecast for a January hike extend into 2024.

In Europe, the Bank of England (BoE) cut its policy rate by 25 basis points, with Morgan Stanley expecting two more cuts in November and December.

In the Euro area, the firm anticipates two further cuts this year but acknowledges the potential for fewer hikes following consecutive sticky core inflation prints.

Globally, the bank says positive political developments in South Africa have improved growth prospects, while India’s post-election budget reaffirms a commitment to capital investment and deficit reduction. Conversely, Brazil faces fiscal risks, with a midyear update revising the primary deficit forecast to -0.5% of GDP versus a target of 0%.

By Sinéad Carew and Amanda Cooper

NEW YORK/ LONDON (Reuters) – Equities around the world were attempting a comeback on Tuesday after the previous day’s aggressive selloff while Treasury yields rose and the dollar was slightly higher as central banker comments countered recession fears.

Oil prices were volatile, with a weak outlook for demand partly offset by price support stemming from the risks of an escalation in the Middle East conflict as well as from a drop in Libyan production.

But the Nikkei‘s roughly 10% rebound in Tokyo brought some relief after the index’s 12.4% drop on Monday – its biggest daily sell-off since the 1987 Black Monday crash.

U.S. Federal Reserve policymakers pushed back on Monday against the notion that weaker-than-expected July jobs data means that the economy is in a recessionary freefall.

Late on Monday San Francisco Fed President Mary Daly said the jobs report leaves “a little more room for confidence that we’re slowing but not falling off a cliff”. But she said it was “extremely important” to keep the jobs market from falling over.

The S&P 500 had lost 3% on Monday, while the Nasdaq slumped 3.43%, extending a recent sell-off as fears of a possible U.S. recession spooked global markets.

“We’re just getting a little bounce after the sell-off of the last few days, We’re seeing a risk-on bounce,” said Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut, noting that investors were adjusting valuations to prepare in case of a recession..

“You had people panicking yesterday, worried about a recession. We’re having a slowdown but that was the intention of the rate hikes,” said O’Rourke.

“You want to make sure it doesn’t turn into a recession, that we’re not slowing too quickly. But thus far the economic data this year is not recessionary.”

On Wall Street at 11:12 a.m. the Dow Jones Industrial Average rose 399.02 points, or 1.03%, to 39,102.29, the S&P 500 gained 73.47 points, or 1.42%, to 5,259.80 and the Nasdaq Composite gained 228.07 points, or 1.41%, to 16,428.15.

MSCI’s gauge of stocks across the globe rose 11.04 points, or 1.45%, to 773.12 after falling more than 3% on Monday, which was its third straight session of declines.

Europe’s STOXX 600 index rose 0.46% in a volatile session with a dip of around 0.5% at its lowest point.

The dollar recovered a little against most major peers and the Japanese yen steadied around 7-month highs against the U.S. currency as some of the more striking moves of recent days reversed somewhat, and a semblance of calm returned to markets.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.06% to 102.93.

Against the Japanese yen, the dollar strengthened 0.37% to 144.7 while the euro was down 0.2% at $1.093.

U.S. Treasury yields rose as fears that the U.S. economy is quickly entering a recession were seen as overdone, while safe haven demand for U.S. bonds also ebbed as stocks recovered.

The yield on benchmark U.S. 10-year notes rose 7.5 basis points to 3.858%, from 3.783% late on Monday while the 30-year bond yield rose 6.9 basis points to 4.14%.

The 2-year note yield, which typically moves in step with interest rate expectations, rose 9.8 basis points to 3.9833%, from 3.885% late on Monday.

Oil prices were volatile with U.S. crude up 0.48% at $73.29 a barrel while Brent rose to $76.5 per barrel, up 0.26% on the day.

In precious metals, gold prices fell as the dollar firmed, although expectations of a U.S. rate cut in September and escalating Middle East tensions limited losses.

Spot gold lost 0.91% to $2,385.70 an ounce. U.S. gold futures fell 0.72% to $2,384.30 an ounce.

Investing.com– The S&P 500 closed higher Tuesday as dip buyers piled into beaten down tech stocks following a rout a day earlier, though gains were limited amid lingers concerns about an economic slowdown.

At 16:00 ET (20:00 GMT), the Dow Jones Industrial Average rose 293 points, or 0.8%, the S&P 500 index climbed 1%, and the NASDAQ Composite gained 1%, though the latter two indexes up more than 2% on the day. 

Nvidia leads tech stocks rebound

Tech stocks were led higher by a rebound in NVIDIA Corporation (NASDAQ:NVDA) as bargain seeking investors bought the dip from a day earlier. 

The rebound in Nvidia comes even as reports suggest that the chipmaker is experiencing delays in rolling out its Blackwell chip. 

Chips will remain in focus Tuesday as Super Micro Computer (NASDAQ:SMCI) reports quarterly earnings after the bell, with investors eager for cues on demand from the artificial intelligence industry. 

Apple Inc (NASDAQ:AAPL), however, struggled to participant in the broader rally as investor sentiment remained soured after Warren Buffet cut his stake in the iPhone maker by nearly 50%.     

Caterpillar Uber, Palantir shine as Q2 earnings continue 

Uber Technologies (NYSE:UBER) stock rose 11% as the ride-hailing firm beat estimates for second-quarter revenue and core profit, helped by steady demand for its ride-sharing and food-delivery services.

Caterpillar (NYSE:CAT) stock rose 3% after the industrial giant reported a rise in quarterly adjusted profit, lifted by resilient demand for its larger excavators and other construction equipment against the backdrop of increased infrastructure spending in the U.S.

Palantir Technologies (NYSE:PLTR) surged 10% after the software services provider raised its annual revenue and profit forecast for the second time this year. 

Lucid Group  (NASDAQ:LCID) was also a winner on the earning stage after reporting better-than-expected revenue in the second quarter and after the EV manufacturer announced that its largest shareholder, Saudi Arabia’s Public Investment Fund (PIF), will invest up to $1.5 billion in cash. Its share price rose 3%.

Media giants Walt Disney (NYSE:DIS) and Warner Bros Discovery (NASDAQ:WBD) are due to release earnings on Wednesday.

Crypto stocks climb as Bitcoin steadies 

Cryptocurrency-related stocks including Marathon Digital Holdings Inc (NASDAQ:MARA), Coinbase Global Inc (NASDAQ:COIN), and MicroStrategy Incorporated (NASDAQ:MSTR) climbed as bitcoin steadied following a rout a day earlier.

(Peter Nurse, Ambar Warrick contrbuted to this article.)