So much fear, but the great crisis already seems to be behind us. After meltdown on Monday, stock markets, Wall Street including, have begun a rapid recovery. The index Nikkei earns 8%. The Yen/USD cross marks +1% at 145,7. In Japan, workers' real wages rose for the first time in more than two years, belying the risk of recession.
Same script in the West: i Wall Street futures they anticipate a start in rise, Nasdaq +1,7%. Me too'Europe try the recovery: Business Square opens higher, driven by MPS (+10%) after the accounts exceeded expectations. The risk of recession, one of the causes of the collapse at the beginning of the week, is disappearing. Three pieces of data have put the fear to rest:
- The anomalous trend ofgold, which yesterday lost -3%, whereas in such a scenario it should have risen in price;
- The performance above expectationsUS non-manufacturing ISM index, improved in July to 51,4 points thanks to the increase in orders and employment. The figure has moved away from the lows of the last 4 years reached in June;
- Le passwords of the president of the Chicago Federal Reserve, Austan Goolsbee, which said Friday's U.S. jobs data do not point to a recession, only that Fed officials need to avoid being too restrictive with interest rates.
To explain the collapse all that remains is the anomalous decline of the yen (-56% from 2021), "drugged" from the moment the Fed began to raise rates, bringing Fed Funds from 0,25% to 5,50%, while the Japanese Central Bank kept rates close to zero. A gap that has gradually widened, making US government bonds increasingly attractive compared to Japanese ones.
Cause of the collapse: the fall of the yen
In a nutshell, what was the real reason for the stock market collapse? We are convinced that the key to understanding is to be investigated in yen. From the beginning of 2021 to July, the yen has devalued of 56% against the US dollar. The descent accelerated when the Federal Reserve American began to increase i rates, resulting in increased yen borrowing to buy higher-yielding assets outside Japan. The very strong recovery of the last three weeks (+12% vs USD) must have forced the most speculative investors (hedge funds?) to quickly dismantle carry trade operations, which are very advantageous only if the yen devalues, but very harmful if the yen it reevaluates.
If so, the crisis could re-enter rather quickly, because the "cleaning operations" are extremely painful, but last very little. So it is best to wait for volatility to settle before looking at shares with serenity again.
Il dollar consolidates after two sales sessions. Yesterday it hit 1,10 for the first time since the beginning of the year, when word of an emergency meeting of the Federal Open Market Committee spread. The above-expected US macro data on Monday partially mitigated the negative ones on Friday: the ISM non-manufacturing index, for the month of July, improved to 51,4 from the 51 already estimated.
Oil raises its head again
Brent opens 1,4% higher due to supply concerns, while t risesension in the Middle East, stronger-than-expected data in the US services sector and production cuts at a major Libyan oil field in Sharara. At least five US personnel were injured in an attack on a military base in Iraq on Monday, US officials told Reuters. Operation: the collapse of the 100-day moving average (85 USD) has caused a worsening of the underlying picture with short-term targets around 77 USD, where you can start buying on weakness with an excellent risk/return ratio.
Dollar/yen: signs of recovery
Lo yen it is in recovery after reaching the highest since the beginning of the year in yesterday's dramatic session at 141,7. Japan's leaders have decided to call an emergency meeting. The Kyodo agency reports that the Bank of Japan, the Ministry of Finance and the Financial Services Agency are meeting today in Tokyo to exchange information on international financial capital markets. Operation: the yen confirmed the signs of a reversal of the negative trend thanks not only to the fall below 155 (100-day moving average), but also to the breach of the discriminating threshold towards 150, which had slowed down the rise for some time. A weekly close below 144 would pave the way for a further extension towards the 130 area.
Bitcoin rebounds
Bitcoin opens in rise of +2%, from -8% yesterday. On Monday it reached 49.212 USD at the moment of maximum tension, the lowest level since February. Investors have siphoned off nearly half a billion dollars from money-related funds cryptocurrency, in four consecutive days of outflows, according to data compiled by Bloomberg. The outflows contributed to the worst weekly exodus since early May for the group of nearly a dozen spot ETFs launched in January. It is likely that some investors were "forced" to close their cryptocurrency positions to deal with suffering accumulated elsewhere (yen?!). Operation: our suggestion to take advantage of the gaps towards the absolute top at 74.000 USD to take profits seems to be quite accurate and our suggestion to return to the 50.000 USD area is equally accurate.
Bond: stability and opportunity
I government bonds they settle down after a couple of brilliant sessions. Ten-year Treasury Note yield at 3,86%, from 3,74%, the lowest level in more than a year. German 2,19-year Bund at 2,17%, from 3,68%. Ten-year BTP at 3,63%, from 149%. Spread at XNUMX basis points.
ECB. In the early afternoon, Frankfurt spreads the usual update on disengagement from the QE program – ending at the end of June 2022 with reinvestments closed in summer 2023 – and by the PEPP, closing at the end of March 2022 with reinvestments expected to be reduced until the end of the year at a rate of 7,5 billion euros per month. In the latest update on the PEPP, relating to April-May, the ECB had launched a reduction of 413 million euros, while in the similar data relating to QE, in June, it had sold 245 million.
Australia. The central institute has kept rates at 4,35%, in line with expectations, reiterating that it does not rule out further rate increases if necessary to keep inflation under control. Operation: the prospect of a general slowdown in economic growth has strengthened purchases of medium/long-term bonds, now considered less risky, less volatile and more profitable than shares, in view of the rate cuts by the Fed and ECB. Therefore we strengthen the positive view. The close of the week provided a marked reversal signal for the 10-year Treasury below 4,0% and for the 10-year Bund below 2,30%. We expect the same signals from the 10-year BTP below 3,45%.
