Investors in the bond and foreign exchange markets are vying to reposition their funds. They speculate that the Federal Reserve will cut interest rates faster and more aggressively, while the weak U.S. consumer spending reflected in corporate financial reports raises concerns about the economic outlook. They doubt whether large-scale investment in AI by technology companies can yield quick returns.
Some popular trades that have driven global financial markets higher this year, including the concept of Artificial Intelligence (AI), are now being "ignored" by investors.
Media reports have found that in the bond and exchange markets, investors are rushing to reposition their investments due to growing doubts about the economic outlook. They speculate that the U.S. Federal Reserve will cut interest rates faster and more aggressively. Weak U.S. consumer spending has fueled this shift, and weak consumer spending has also been reflected in disappointing corporate earnings reports.
Meanwhile, investors in U.S. stocks are beginning to question whether technology companies' large-scale investments in AI will yield quick returns and are therefore selling frantically.$NVIDIA (NVDA.US)$,$Broadcom (AVGO.US)$Other popular AI concept stocks are also being sold off.
The pessimistic outlook for demand and the technology industry has also been reflected in the metal market. As of Wednesday, LME copper had fallen for eight consecutive trading days, hitting a new low since early April for three consecutive days, down about 20% from its record high reached in May two months ago.
The initial estimate of second-quarter GDP growth in the United States released on Thursday was stronger than expected, but it did not ease investors' concerns about the future outlook. Louis-Vincent Gave, CEO of Gavekal Research, wrote in a report to clients that "those popular trades that have reached foolish levels of valuation are beginning to be liquidated."
Apollo Global Management's Chief Economist Torsten Slok told clients on Thursday that "if the economy begins to slow down, the speed of the slowdown will be crucial. If the slowdown is too fast, it will have a negative impact on corporate profits and increase the likelihood of a stock market and credit market downturn."
James Athey, portfolio manager at Marlborough Group, said that apart from the most optimistic predictions for future growth, earnings and monetary policy, no other factor seems to be proving the fair valuation of blue-chip technology stocks. This extreme situation is inevitably unsustainable.
In addition to the selling of AI concept stocks, the rise of the yen and the collapse of arbitrage trading are also signs of popular trades being overturned.
The unexpected contraction of the July S&P Global Manufacturing PMI in the United States released on Wednesday added to signs of a slowdown in the U.S. economy. According to Reuters on Wednesday, the Bank of Japan may consider raising interest rates at its policy meeting next week, which together pushed up expectations for a narrowing of the U.S.-Japanese interest rate spread. As the U.S. economy slows down, the Bank of Japan makes "hawkish" noises, and a sharp drop in U.S. technology stocks drives the outflow of safe-haven funds, yen carry trades have recently had a big reversal.
Before giving up gains during the trading session on Thursday, the USD/JPY exchange rate hit a new high for more than two months for the second consecutive day. The USD/JPY fell to 151.94 in early European stock trading, hitting a new low since May 3 for two consecutive days, with an intraday decline of nearly 1.3%. After the release of U.S. GDP, the USD/JPY rose several times during the trading session as the U.S. dollar index rebounded.
Edited by Jeffrey