CRYPTO FLUCTUATIONS
Despite global stocks pushing towards record highs after concerns over the US economy have eased, Bitcoin and the larger cryptocurrency market are reeling from significant losses in August. The leading digital asset has plummeted by around 10% compared to MSCI Inc.’s world share index, which is up almost 1%. Analysts are pointing towards the risk posed by potential sell-offs of Bitcoin held by the U.S. government, amounting to $12 billion, as a major challenge for digital assets. Recent blockchain data revealed a transfer of $600 million in seized Bitcoin to a wallet on Coinbase Global Inc.’s exchange. This event, coupled with a decline in risk appetite due to ongoing U.S growth fears and negative funding rates for Bitcoin perpetual futures, has contributed to the downward pressure on cryptocurrency prices.
MARKET SHIFT
According to current data from Goldman Sachs, hedge funds have been actively adjusting their investment strategies. Last week, these funds were observed selling industrial stocks at an accelerated rate while also demonstrating a sustained interest in energy stocks for the fourth consecutive week. This tactical shift is believed to be a wager on economic sectors that may thrive following a potential rate cut in the U.S.. Notably, hedge funds targeted companies offering professional services, ground transportation, machinery, and passenger airlines, with a significant increase in short positions against these stocks. Moreover, although there was some limited buying in air freight and defense stocks, the overall trend leaned towards shifting investments from industrial to energy sectors. Furthermore, there has been a noticeable surge in investments in oil, gas, and energy equipment companies, as noted by Goldman Sachs. This aligns with the “Trump trade” concept where some investors believe energy companies may see benefits under a potential second term for President Donald Trump. Nevertheless, some investments, like European carmakers, have encountered challenges due to concerns over possible tariffs on foreign imports.
LOWER CHANCE OF RECESSION
Based on the latest encouraging economic data, which boosted stock prices and propelled stocks to their most successful week of the year, Goldman Sachs economists revised their prediction for a potential U.S. recession and lowered the likelihood from 25% to 20%. Let’s remember that the latest data showed that July saw a notable surge in retail sales, while the number of unemployment benefit applications plummeted to its lowest level since early July, and this created optimism in the overall market. Additionally, Goldman Sachs economists anticipate further improvement if the forthcoming August jobs report, slated for release on September 6, shows promising results. Furthermore, they have stated that they are increasingly confident in the Federal Reserve’s intent to reduce interest rates by 25 basis points at their September meeting, with the possibility of a larger rate cut of 50 basis points if the upcoming jobs report indicates a need for further action.
INTERNATIONAL NEWS
JPMorgan revealed that after the recent period of decline in the Japanese market, trend-following investors have switched back their focus towards Japanese stocks, particularly the Nikkei 225 and TOPIX futures, as sustained growth is expected. Market concerns were alleviated by assurances from Bank of Japan (BOJ) regarding gradual rate hikes and positive economic data for the second quarter, and as a result of this, the Nikkei 225 index rebounded significantly, surging over 20% from its low point in early August. Following such significant increase, analysts from JPMorgan observed a swift adjustment in the systematic trading plans of many trend-following investors, known for their algorithm-based approaches to profit from market trends, and this re-entry is seen as a positive indicator for the market. In addition, many expect other investors, including macro hedge funds and momentum-driven funds, to follow suit if the recovery in Japanese stocks continues.
KEY EVENTS HAPPENING THIS WEEK
Monday: U.S. leading economic indicators report for July, earnings report from Palo Alto Networks (after market closes), and speech from Fed Vice Chair for Supervision Michael Barr.
Tuesday: Speeches from Atlanta Fed President Raphael Bostic and Fed Vice Chair for Supervision Michael Barr, and earnings report from Lowe’s (before market opens).
Wednesday: Minutes of Fed’s July FOMC meeting, and earnings reports from Target, Macy’s, TJX Companies (before market opens), Snowflake, Zoom Video and Urban Outfitters (after market closes).
Thursday: Existing home sales report for July, S&P flash U.S. services and manufacturing PMI reports for August, initial jobless claims for week ending on August 17, and earnings reports from Peloton (before market opens) and Workday, Ross (after market closes).
Friday: New home sales report for July, and speech from Fed Chairman Jerome Powell.
