Source: Wall Street See
Authors: Fang Jia Yao, Du Yu, Zhang Yaqi, Bu Shuqing.

The US July ISM service index exceeded expectations and returned to expansion, and under the soothing words of Fed officials, Japanese and Korean authorities, and Wall Street banks, the panic of an economic recession was relieved. Some investors believe that the reaction to concerns about an immediate recession in the US economy is excessive. Risk sentiment rebounded on Tuesday, but the market remained cautious, and the closing gains of US stocks were halved, with gains and losses in technology stocks.

On Monday, weak US non-farm data increased concerns about economic recession, and the performance of technology stocks was mixed with high valuations and expectations. Geopolitical tension escalated, and after the Bank of Japan's decision to raise interest rates, the yen carry trade encountered liquidation, causing global risk assets to plummet and technology stocks to lead the decline in carry trade beneficiaries.

Goldman Sachs CEO said the recent pullback in the US stock market may still be "healthy," and expects no risk of economic recession in the US. The Fed will avoid taking emergency interest rate cuts. The Fed is expected to cut interest rates once or twice this fall. Former ECB President Trichet said that the rebound of the yen is expected and can be seen as a "belated but healthy correction" without panic. Morgan Asset Management said that its basic forecast scenario is still a soft landing of the US economy, the Fed will not make emergency interest rate cuts, but there is a possibility of a 50 basis point rate cut in September. CME FedWatch Tool shows that the probability of a 50 basis point rate cut in September is 70.5%, lower than Monday's 85%.

Funds took advantage of the bargain buying opportunity on Tuesday, pushing global stocks to rebound after yesterday's plunge. As market sentiment improved, the weakening of hedging demand caused the US dollar and US bond yields to rise together, pushing down the price of precious metals. The rebound of the financial market eased concerns about oil demand prospects, while the tense situation in the Middle East intensified, causing oil prices to rebound from their lowest point in six months. Bitcoin also rose, and the yen fell slightly but did not continue to decline, triggering speculation that the Bank of Japan quietly intervened in the foreign exchange market.

Overnight Nikkei surge boosted global market sentiment, major US stock indexes all rebounded, ending the three-day decline. Nasdaq and S&P broke away from their three-month lows, NVIDIA rose 3.78%, and Apple fell 0.97%:

• US stock indexes rose across the board. The S&P 500 closed up 1.04% at 5,240.03. Dow closed up 294.39 points or 0.76% at 38,997.66. Nasdaq closed up at 16,366.85. Nasdaq 100 closed up 1.02%. The Nasdaq Technology Market Cap Weighted Index (NDXTMC), which measures the performance of Nasdaq 100 technology stocks, closed up 1.16%. The Russell 2000 index closed up 1.23%. The VIX panic index fell 28.16% to 27.71.

• When it hit a new daily high, the Dow rose nearly 750 points or nearly 2%, the Nasdaq, which is dominated by technology stocks, rose nearly 2.6%, the S&P 500 rose more than 2.4%, and the Russell 2000 small-cap stock index rose more than 2.3%. The chip stocks index and the Chinese concept stocks index once rose more than 3.6%.

• US industry ETFs closed up across the board. The global aviation industry ETF, the semiconductor ETF, and the banking ETF all rose nearly 2%, while the technology industry ETFs, the global technology stock ETF, the internet stock index ETF, and the optional consumption ETF all rose at least 1%. The utility ETF, the daily consumer goods ETF, the energy industry ETF, and the bank ETF all rose at least 0.5%.

• The 11 sectors of the S&P 500 index all closed up, with the real estate sector up 2.3%, and the financial, telecom, industrial, information technology/technology, and optional consumption sectors up to 1.46%. The energy sector was the "worst performer" with a 0.4% rise.

• "The Magnificent 7" technology stocks mostly closed up. "Metaverse" Meta led the gains with 3.86%, Nvidia initially rose more than 7% and then closed up 3.78%. Microsoft closed up 1.13%, Tesla, which initially fell more than 3% in the session, then reversed to close up 0.88%, Amazon closed up 0.57%, while Google A fell 0.6% and Apple opened down nearly 4% and then closed down 0.97%.

• Most chip stocks rose. The Philadelphia Semiconductor Index rose 1.06%; the industry ETF SOXX rose 0.91%; the Nvidia 2x Long ETF rose 6.83%. TSMC US stock rose 5.03%, and Morgan Stanley listed it as a preferred stock. Arm Holdings rose 2.66%, Qualcomm rose 0.49%, Broadcom rose 1.3%, KLA Corp rose 1.81%, Applied Materials rose 0.78%, ASML Holding ADR rose 2.76%, while Intel fell 1.39%, Micron Technology fell 1.57%, AMD fell 3.44%, and ON Semiconductor fell 0.67%.

• AI-concept stocks generally rose. Serve Robotics, an AI robot delivery company held by Nvidia, rose 15.05%; BullFrog AI rose 11.39%; Snowflake rose 1.94%; Oracle rose 0.27%; CrowdStrike rose 4.34%; C3.ai remained stable; Palantir rose 10.38%; SoundHound AI, an AI voice company held by Nvidia, rose 5.69%; Super Micro Computer rose 1.33%, while BigBear.ai fell 0.81% and Dell Technologies fell 3.58%.

• China concept stocks led the gains. The Nasdaq Golden Dragon China Index closed up 3.03%. Among the ETFs, the KWEB China Internet ETF rose 1.16%, and the CQQQ China Technology ETF rose 0.28%. Among the popular China concept stocks, New Oriental surged 13.38%, Yum China rose 11.98%, Kanzhun rose 8.33%, Li Auto Inc. rose 0.42%, PDD Holdings rose 5.1%, Baidu rose 0.75%, JD.com rose 2%, Alibaba rose 1.2%, while Bilibili fell 2%, NetEase fell 1.41%, Tencent Holdings (ADR) fell 0.53%, NIO Inc. fell 3.08%, and XPeng fell 1.37%.

• Among other stocks with large changes in financial reports, (1) Although Super Micro Computer's full-year and Q3 guidance is better than expected, investors are more concerned about Q2 sales being lower than expected, and the stock price erased about 18% of its gains after hours and then turned down more than 10%. Nvidia gave back more than 4% of its gains after hours as well. (2) Uber rose 10.93%, with Q2 revenue and profit better than market expectations. (3) "AI concept stock" Palantir's second-quarter report was better than expected, and it raised its full-year guidance, with a gain of more than 10%. (4) Yum China's Q2 EPS and new store openings were better than expected, with total revenue and operating profit reaching a new high in the same period, and its stock price rose 11.98%. (5) Disney announced an increase in the subscription service prices for streaming media, which could be up to 25%, and adds some new channels before the release of the earnings report. The stock price rose 2.49%. (6) Industrial giant Caterpillar rose more than 7% in pre-market trading and closed up 3%, with Q2 adjusted EPS higher than market estimates.

• Among the highly volatile stocks, solar stocks SunPower filed for bankruptcy and its stock price fell 43.79%.

• In terms of investment strategy, according to Goldman Sachs' latest brokerage business data, hedge funds bought at low levels when the US stock market plunged on Monday. It is worth noting that North America is the only region in the world with net purchases, and all other regions are net sellers. Of the 11 industries in the US stock market, eight industries received net purchases, led by information technology and defensive stocks. JPMorgan believes that the opportunity to buy in low levels of the US stock market is approaching, and the rotation from technology stocks to the outside has been largely completed. Whether there will be a strong rebound depends on future macroeconomic data. Citigroup believes that investment positions have just begun to decrease, and the risk is inclined to be further removed, so it is recommended to wait patiently before bottom-fishing. UBS stated that there are multiple global macro risks recently and the China stock market has relative defensive attributes.

European stock market bid farewell to the trend of falling by more than 2% in the first two days, followed the global rebound and closed slightly higher, but fluctuated between gains and losses during the day, indicating that market sentiment is still cautious:

• The Stoxx 600 index opened higher with a gain of more than 0.74% at one point and closed up 0.29%. Among them, tourism and leisure stocks rose more than 1.59%, and banks and technology stocks, which were sold most severely on Monday, also rose. Major regional stock indices were mixed, with the UK index up 0.23%, the German index up nearly 0.1%, the French index down nearly 0.3%, the Italian index down 0.6%, and the Spanish index down 0.32%.

The US stock market rebounded, lowering investors' demand for safe-haven US bonds. The yields of all US bonds rose, and the 10-year yield rose by more than 10BP to 3.909%, ending more than a year of low:

• In the end, the yield of the 2-year Treasury bond, which is more sensitive to monetary policy, rose by 6.11 basis points to 3.9812%, and the yield of the 10-year benchmark Treasury bond in the United States rose by 9.97 basis points to 3.8881%. The yield of the 2-year US Treasury bond rose by nearly 12 basis points at its peak and once exceeded 4%, breaking the lowest level since April 2023. The US Treasury sold 3-year Treasury bonds at an awarded interest rate of 3.810%, slightly lower than the pre-issuance trading level, which intensified the selling of US bonds during the day.

• Eurozone benchmark 10-year German bond yields rose 1 basis point, 2-year German bond yields rose 2.8 basis points, French 10-year bond yields fell 2.4 basis points, Italian 10-year bond yields fell 3.0 basis points, Spanish 10-year bond yields fell 2.3 basis points, and Greek 10-year bond yields fell 2.6 basis points. The yield on the UK's two-year and 10-year government bonds rose by at least 4 basis points.

Risk aversion receded, the US dollar rose 0.2%, the yen once fell below 146 and stabilized, and cryptocurrencies rose across the board:

• The US dollar index DXY, which measures against six major currencies, rose 0.21% to 102.901 points. The intraday trading range was 102.7-103.225 points, and it once rose above 103, leaving a seven-month low. Bloomberg's US dollar index rose 0.28% to 1249.19 points, with an intraday trading range of 1244.73-1250.90 points.

• Most non-US currencies fell. The euro against the US dollar fell 0.17% from a seven-month high, the pound against the US dollar fell 0.68% to a five-week low, and the safe-haven Swiss franc fell during the day.

• The yen against the US dollar fell for the first time in six days, falling 1.5% at one point and breaking through 146. The euro against the yen fell 0.06% to 157.78 yen; the pound against the yen fell 0.53% to 183.147 yen.

• In terms of investment research strategy, JPMorgan stated that due to the fact that the yen is still one of the most undervalued currencies, there is still room to close the recent financing arbitrage transactions.

• Offshore renminbi: The offshore renminbi (CNH) against the US dollar fell by 205 points to 7.1590 yuan, and the overall trading during the day was within the range of 7.1337-7.1650 yuan.

• Bitcoin rose across the board. The largest market capitalization leader Bitcoin rose 5.82% at the close of the day, with intraday trading ranging from $54,230.00 to $57,420.00. The second-largest Ethereum rose 2.48% at the close, closing at $2,502.00.

• Analysis shows that as the stock market plunged on Monday and the unwinding of interest rate arbitrage trades, Bitcoin's performance was more like stocks than gold, falling 17% at one point, breaking investors' belief that Bitcoin is equivalent to 'digital gold' and that it can hedge against stock market fluctuations as part of asset allocation.

Oil prices have come off six-month lows as the market prepares for an escalation in Middle East tensions, while a rebound in financial markets allays concerns over oil demand prospects:

• WTI crude oil futures for September rebounded from yesterday's $72.94 per barrel to $73.20 per barrel, with an intra-day increase of nearly 0.36% or $0.26. In early Asian trading, U.S. oil rose more than 2.2% to approach the $75 integer mark, while pre-market trading on U.S. stocks fell more than 1% to approach the $72 integer mark and rose again in late trading.

• Brent crude oil futures for October rebounded from yesterday's $76.31 per barrel to $76.48 per barrel, with an intra-day increase of more than 0.22% or $0.17. In early Asian trading, Brent oil rose more than 2% to approach the $78 integer mark, while pre-market trading on U.S. stocks fell nearly 1% to break through the $76 integer mark and rose again in late trading.

• Henry Hub natural gas futures for September closed up 3.50% at $2.010 per million British thermal units.

• The U.S. Energy Information Administration (EIA) has lowered its expectations for Brent crude oil prices for the next two years and lowered its expectations for U.S. GDP and oil production in 2025. Specifically, Brent crude oil prices are expected to be $84 per barrel in 2024 (previously expected to be $86 per barrel) and $86 per barrel in 2025 (previously expected to be $88 per barrel). U.S. oil production is expected to remain unchanged at 13.2 million barrels per day in 2024, and is expected to be 13.7 million barrels per day in 2025 (previously expected to be 13.8 million barrels per day). U.S. GDP growth is expected to remain at 2.4% in 2024 and is expected to increase by 1.6% in 2025 (previously expected to increase by 1.8%).

During early Asian trading, gold prices experienced a sharp sell-off before stabilizing, with rate cut expectations and escalation of conflicts in the Middle East supporting a rise in gold prices above $2400 per ounce, but subsequently, the rise in the dollar and U.S. bond yields pushed gold prices down:

• COMEX December gold futures fell 0.64% to $2428.7 per ounce at the close. Spot gold rose more than 0.34% in early Asian trading before falling nearly 1.2% in pre-market trading on U.S. stocks to break below the $2400 integer mark, and the decline narrowed in late trading but failed to rise.

• COMEX September silver futures fell 0.36% to $27.110 per ounce at the close. Spot silver rose nearly 1.2% in early Asian trading before widening its losses. In pre-market trading on European stocks, it fell nearly 2.4% to break below the $27 integer mark, and rebounded slightly in late trading without turning upward.

• Analyst viewpoint: Fawad Razaqzada, market analyst at Forex.com, said that central bank interest rate cuts will limit gold's downside potential and even push gold prices to new highs, and he expects gold prices to reach $2500 in the short term. Goldman Sachs analyst Daan Struyven maintained an optimistic forecast for gold prices, predicting that gold prices will rise to $2700 per ounce by 2025, an 11.8% increase from current levels. This forecast is based on expectations of a Federal Reserve interest rate cut and the attractiveness of gold as a zero-interest asset in a low borrowing cost environment.

• Most London metals closed higher. The 'Doctor Copper' indicator rose 0.45% to $8928 per tonne, tin rose 2.04%, nickel rose about 0.67%, while lead rose more than 1.24% and zinc fell more than 1.21%. International copper, Shanghai nickel and Shanghai tin night sessions rose by more than 1.9% at most.

Editor/Jeffy