Money
Magnificent Seven tech companies set to shed $900 billion in market value
The global stock-market selloff intensified, resulting in a dramatic decline of over 12% for Japan’s Nikkei 225.
Wall Street’s main indexes slumped on Monday after bourses from Asia to Europe took a beating as fears of a U.S. recession and unwinding of carry trades rippled through global markets.
The selloff was brutal, with the so-called Magnificent Seven group of stocks – the main driver for the U.S. indexes – set to lose a combined $900 billion in market value. Tokyo’s Nikkei index finished Monday with a 12% loss, the largest one-day drop since the aftermath of “Black Monday” in October 1987.
There is no lone trigger for these moves, but data on Friday that showed the U.S. economy did not generate as many jobs as expected in July has been a major catalyst, while in Japan an interest rate hike on July 31 has made bets on a cheap yen – used to fund purchases of assets with better returns – less profitable.
This decline follows a tumultuous period on Wall Street, where popular trades of the year have been aggressively unwound.
Tech sell-off
The premarket selloff in technology shares continued, with major players like Nvidia, Meta, and Apple each losing 5% or more.
Apple was further impacted by weekend filings showing Berkshire Hathaway had significantly reduced its stake in the company.
Investor concerns about a slowing U.S. economy have taken centre stage, particularly after data revealed a sharp slowdown in job growth in July.
Many investors now fear the Federal Reserve has been too slow to act and may need to expedite rate cuts following its September meeting.
Globally, investors sought the safety of the bond market.
The yield on the 10-year U.S. Treasury recently traded around 3.77%, down from over 4.1% a week ago, and was on track to settle at its lowest level in over a year.
The VIX, Wall Street’s fear gauge, surged above 34, its highest intraday level since 2022.
Yields on Treasury notes fell, with those tied to the two-year note dropping the most, causing the yield curve to steepen.
Asian markets
Japanese stocks were among the hardest hit worldwide.
The Nikkei 225 experienced its largest single-day drop since 1987. In other markets, South Korea’s benchmark Kospi fell 8%, and the Stoxx Europe 600 declined by around 2%.
The yen strengthened by more than 2% against the dollar, continuing a trend that began last month.
Bitcoin’s price also plummeted, trading around $53,000, down roughly 11% from Sunday’s 4 p.m. ET price.
Major shift
A meltdown in world equity markets in recent days is more reflective of a wind-down of carry trades used by investors to juice their bets than a hard and fast shift in the U.S. economic outlook, analysts say.
While Friday’s weaker-than-expected U.S. jobs data was the catalyst for the market sell-off, with Japan’s blue-chip Nikkei index on Monday suffering its biggest one-day rout since the 1987 Black Monday selloff, the employment report alone wasn’t weak enough to be the main driver of such violent moves, they added.
Instead, the answer likely lies in a further sharp position unwind of carry trades, where investors have borrowed money from economies with low interest rates such as Japan or Switzerland, to fund investments in higher-yielding assets elsewhere.
“We don’t see evidence in data that’s saying we’re looking at a hard landing,” said Mark Dowding, chief investment officer at BlueBay Asset Management, referring to pre-determined levels that trigger buying or selling.
“In our assessment a lot of this (market sell-off) has been down to position capitulation as a number of macro funds have been caught the wrong way around on a trade, and stops have been triggered, initially starting with FX and the Japanese yen.”
Money
Inflation rise reduces chances of Reserve Bank rate cut
Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs
Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs
– Rate cut likelihood by the Reserve Bank has decreased due to a rise in annual inflation to 3.2 per cent.
– Significant price increases in housing, recreation, and transport are raising concerns for the Reserve Bank.
The likelihood of a rate cut by the Reserve Bank has decreased significantly after a surge in annual inflation.
The Australian Bureau of Statistics reported that inflation for the year ending September rose to 3.2 per cent, reflecting a 1.1 per cent increase.
Trimmed mean inflation, a crucial measure for the Reserve Bank, was recorded at 1 per cent for the quarter and 3 per cent for the year. The bank anticipates inflation to reach 3 per cent by year-end, while trimmed mean inflation is expected to slightly decrease.
The quarterly rise of 1.3 per cent in September exceeded expectations. Governor Bullock noted that a deviation from the Reserve Bank’s projections could have material implications.
Financial markets reacted promptly, with the Australian dollar rising against the US dollar, while the ASX200 index fell.
The most significant price increases were observed in housing, recreation, and transport, indicating widespread price pressures that concern the Reserve Bank.
Despite the unexpected inflation rise, some economists believe the Reserve Bank may still consider rate cuts in December, viewing current price spikes as temporary due to the winding back of subsidies.
Economic Pressures
Broad-based economic pressures suggest that the Reserve Bank may not reduce interest rates at its upcoming meeting. Analysts highlight the need for ongoing support for households facing cost-of-living challenges.
Money
Wall Street hits record highs on low inflation
Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision
Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision
– U.S. stocks rose to record highs on Friday due to lower inflation and strong corporate earnings.
– Key earnings reports from major companies are expected next week, influencing market trends.
The Labor Department reported that the Consumer Price Index was slightly cooler than analysts’ predictions, easing concerns about inflation impacts from tariffs. This development suggests a likely interest rate cut by the Federal Reserve at its upcoming meeting.
Ryan Detrick from Carson Group noted the positive inflation news may facilitate forthcoming Fed rate cuts. Despite the ongoing government shutdown affecting data releases, this CPI report provided much-needed clarity.
Earnings reports are continuing, with 143 S&P 500 companies having reported results. Growth expectations for third-quarter earnings have risen to 10.4%. Detrick indicated a strong opening to the earnings season with a significant percentage of companies exceeding expectations.
This coming week, key earnings will be reported from Meta Platforms, Microsoft, Alphabet, Amazon, and Apple, alongside industrial companies like Caterpillar and Boeing.
The Dow rose 472.51 points to 47,207.12. The S&P 500 increased by 53.25 points to 6,791.69, while the Nasdaq gained 263.07 points, reaching 23,204.87.
Alphabet gained 2.7% following a deal expansion with Anthropic. Coinbase saw a 9.8% increase from a JPMorgan upgrade. In contrast, Deckers Outdoor’s shares fell 15.2% after lowering sales forecasts.
Market Trends
Advancing stocks on the NYSE outnumbered decliners by 2.18 to 1. The S&P 500 had 34 new highs, with the Nasdaq recording 124.
Trading volume was 19.04 billion shares, lower than the average of the past 20 days.
Money
US stocks face tests from Tesla, Netflix earnings
US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data
US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data
– Earnings reports from Tesla and Netflix might affect U.S. stock performance next week amid high inflation concerns.
– Increased market volatility arises from U.S.-China trade tensions and fewer S&P 500 stocks in an uptrend.
The S&P 500 entered its fourth year of growth amidst these fluctuations, having previously experienced a period of calm. Experts suggest market risks are intensifying as valuations reach peak levels.
Market Volatility
Concerns regarding U.S.-China trade relations escalated last week when the U.S. threatened to raise tariffs by November 1 over China’s rare-earth export policies. President Donald Trump is scheduled to meet with President Xi Jinping in two weeks to discuss these issues.
Despite these challenges, major stock indexes gained ground over the week, with the S&P 500 up 13.3% year-to-date. However, a noticeable decline in the number of S&P 500 stocks in an uptrend raises caution among investors about underlying market weaknesses.
The upcoming third-quarter earnings will be closely monitored, especially as the government shutdown halts economic data releases. Companies like Procter & Gamble, Coca-Cola, RTX, and IBM are due to report. The delayed U.S. consumer price index is also expected to provide crucial insights ahead of the Federal Reserve’s monetary policy meeting on October 28-29.
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