After a day of turmoil and significant losses, equity markets rallied overnight, helped by weakness in the Japanese yen, as the unwind of the so-called “carry trade” appears to have slowed, for now at least.
A weaker yen supports Japanese equity indices and their exporters. At the time of writing the Nikkei 225 is up by 7.70%, though it had been higher, erasing a large portion of yesterday's losses. However, it’s too early to say we are in the clear, and we only need to look back to last Wednesday, when Nvidia posted the largest one-day gain in market cap the world has ever seen, to illustrate this point.
US markets
The S&P 500 dropped 3% yesterday, with the biggest losses coming from the “old economy”. Casino operator Caesars Entertainment fell by 6.90%, while pharmacy group Walgreens Boots Alliance lost 6.62%.
On the tech-heavy Nasdaq 100, Intel fell by 6.38%, extending its six-month losses to almost 53.0%. However, not all tech stocks were down on the day, and Advanced Micro Devices and DoorDash rose by 1.75% and 3.47% respectively.
The biggest gainer among US large caps was Kellanova (formerly known as Kellogg) , which jumped by 16.23% amid rumours of bid interest from Mars. However, the tone of the market overall was undeniably bearish, and more than 4,570 listed US stocks posted new five-day lows on Monday, while 2,770 posted fresh one-month lows.
European markets
The big movers in the Euro STOXX 50 yesterday were ING, down by 4.93%, E.ON, which lost 4.81% and Nokia, which fell 3.5%. Gainers were thin on the ground, though ASML finished the day up by 1.21%.
In the UK, aerospace engineer Melrose fell by 6.36%, Scottish Mortgage Investment Trust (which holds many leading tech stocks in its portfolio) fell by 5.56% and silver miner Fresnillo lost 4%.
European stock markets opened cautiously higher on Tuesday morning, with Denmark and Norway leading gains on an index level. Major 10-year bond yields improved slightly in early European trade this morning, and could be an indicator to watch along with USD/JPY. Falling bond yields and a rising yen could be negative signals, while rising bond yields and yen weakness could support risk assets like equities.
Today’s economic calendar is light. The Reserve Bank of Australia have kept interest rates steady for now, and this morning’s construction purchasing managers’ index (PMI) data from the UK showed an increase to 55.3 (the highest levels since May 2022) from 52.2 in June. The UK construction sector could benefit from the Labour government’s plans to boost housebuilding in the country, and the sector’s PMI data has been on an upward trajectory during 2024 despite a 2.5-point drop in June.
Point of interest
Volatility within the S&P 500, as measured by the VIX index, jumped sharply yesterday as traders sold risk assets. The “fear index” hasn’t been this high since October 2020, though it did hit 66.04% in March 2020.
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