[True Zoom Finance] July 25 Market Daily: U.S. stocks post biggest drop in a year and a half, tech stocks plunge
"U.S. stocks $S&P 500(.SPX.US) The S&P 500 Index recorded its largest single-day drop in a year and a half. Goldman Sachs' trading desk advised systematic funds to sell U.S. stocks. Meanwhile, volatility has been rising, with Wall Street's fear gauge VIX surging 14% on Wednesday."
Overnight Highlights
l U.S. stocks fell, with tech stocks dragging the S&P 500 Index to its largest single-day drop in a year and a half, as concerns grew over whether the AI hype has been overblown. The U.S. manufacturing PMI fell back into contraction territory in July, while short-term Treasury yields plunged, signaling market expectations that the Fed will cut rates sooner and more aggressively than anticipated. The stock sell-off boosted demand for safe-haven assets, lifting the yen and Swiss franc. Oil prices rose as U.S. crude inventories dropped to their lowest level since February.
International News
l The U.S. Democratic Party will confirm Vice President Kamala Harris's nomination and her yet-to-be-announced running mate by August 7.
l U.S. business activity expanded at its fastest pace in over two years in July, with the composite PMI rising 0.2 points to 55, the highest since April 2022. The services PMI also climbed to its highest since March 2022, while manufacturing slipped back into contraction.
l U.S. new home sales unexpectedly fell to a seven-month low in June due to high mortgage rates and home prices.
l Eurozone private-sector activity growth nearly stalled in July due to an unexpected decline in Germany, with the composite PMI dropping to 50.1, the weakest since February.
l The S&P 500 Index recorded its largest single-day drop in a year and a half. Goldman Sachs' trading desk advised systematic funds to sell U.S. stocks. Meanwhile, volatility has been rising, with Wall Street's fear gauge VIX surging 14% on Wednesday.
l Short-term Treasury yields plunged, with the 5-30 yield curve steepening to its most pronounced in over a year. A former New York Fed president urged the Fed to start cutting rates next week to avoid a recession.
l The Bank of Canada cut rates by 25 bps for the second consecutive time and signaled further easing as inflation concerns fade.
l Reuters: The Bank of Japan is reportedly set to announce a plan to roughly halve bond purchases over the coming years at next week's meeting.
l Deutsche Bank posted its first quarterly loss in four years, with its CFO admitting over-optimism on commercial real estate loans. Blackstone Mortgage Trust, a commercial real estate lender, slashed its dividend by 24% due to rising defaults.
Greater China News
l Chinese Foreign Minister Wang Yi told Ukraine's visiting foreign minister that conditions and timing for Russia-Ukraine peace talks "are not yet ripe."
l A Bloomberg survey showed economists expect China's Q3 GDP growth at 4.7%, down from a prior estimate of 4.8%. Over half predict the one-year LPR will be cut by at least 10 bps in Q4.
l ICBC and ABC cut deposit rates to bolster record-low net interest margins.
l Super Typhoon Gaemi made landfall in Taiwan early Thursday and is expected to move toward China's southeastern coast.
l The Information reported that $NVIDIA(NVDA.US) NVIDIA (NVDA.US) will pair AI chips sold to China with specialized servers to mitigate performance limitations.
l Reuters: India may relax investment restrictions on Chinese solar panel and battery manufacturers.
l Nikkei: Honda plans to cut China's ICE vehicle production capacity by ~30%.
Commodities & FX
l The S&P 500 posted its worst drop since December 2022 amid weak earnings and rising Treasury yields, boosting safe-haven currencies. The CAD fell to a 3-month low after the BoC's expected 25-bp cut and growth warning.
l USD/JPY slid 1.6% to 153.11 in thin trading before paring losses to 153.99. Reuters reported the BoJ plans to halve bond purchases in coming years.
l EUR/USD dipped 0.1% to 1.0840, hitting a near two-week low of 1.0826 after Eurozone PMIs showed near-stagnation.
Earnings & Data Watch
l U.S. initial jobless claims (prior: 243K, forecast: 238K)
l U.S. Q2 GDP annualized q/q (prior: 1.4%, forecast: 2.0%)
l U.S. Q2 core PCE q/q (prior: 3.7%, forecast: 2.7%)
Source: Goldhorse Capital Extramile
Author: Terry Chow
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