Overnight US Stocks | Global stock markets suffer a "bloodbath" with the S&P 500 experiencing its largest single-day drop of 2022

According to the financial news app Zhitong Finance, on Monday, global stock markets experienced a sharp decline, with Japan's Nikkei 225 index closing down by 12%, marking the largest single-day drop since the 1987 Wall Street crash. The S&P 500 index also saw its largest single-day drop since 2022.

The yield on 2-year US Treasury bonds fell below the 10-year yield for the first time since July 2022. Previously, the US bond yield curve had been inverted for a long period, breaking the record for the longest time in history. This has put its reputation as an indicator of economic problems to the test, as the US stock market had been hitting new highs until mid-July this year. Analyst Adam Button from the financial website Forexlive stated that since 1955, the inverted yield curve has had a good track record in predicting US economic recessions. However, what truly signals an impending recession is not the inverted curve, but when the curve returns to normal. We can think of it as a storm forecast, with the inversion indicating the formation of a storm, and the normalization indicating the storm making landfall, especially during the front-end dominated bull steep phase. We won't see a recession before the data shows it, but the market is definitely contracting. In addition to the slope of the curve, the yield on 2-year US Treasury bonds has dropped by 20 basis points, nominally 170 basis points lower than the Fed funds rate. This situation would not occur if there were no real economic problems.

[US Stocks] At the close, the Dow Jones fell by 1033.99 points, a decrease of 2.60%, to 38703.27 points; the Nasdaq fell by 576.08 points, a decrease of 3.43%, to 16200.08 points; the S&P 500 index fell by 160.23 points, a decrease of 3.00%, to 5186.33 points. Apple (AAPL.US) fell by 4.82%, marking its worst single-day performance since September 2022, at $209.27. Nvidia (NVDA.US) fell by 6.36%, Google A (GOOGL.US) by 4.45%, Tesla (TSLA.US) by 4.23%, Amazon (AMZN.US) by 4.1%, Microsoft (MSFT.US) by 3.27%, Meta (META.US) by 2.54%.

[European Stocks] Major European indices closed lower, with Germany's DAX30 index down by 1.7%, the UK's FTSE 100 index down by 2.1%, France's CAC40 index down by 1.6%, and the Euro Stoxx 50 index down by 1.8%.

[Asia-Pacific Stock Markets] The Nikkei 225 index plummeted by 12%, Indonesia's Jakarta Composite Index fell by 3.38%, and Vietnam's VN30 index dropped by 3.82%.

[Gold] COMEX gold futures fell by 0.72% to $2452.1 per ounce; COMEX silver futures fell by 3.63% to $27.36 per ounce.

[Cryptocurrencies] Bitcoin fell by over 4.8% to $62133.3 per coin; Ethereum fell by over 6% to $3005.1 per coin.

[Crude Oil] US WTI crude oil futures fell by 0.8% on Monday. Concerns about a US economic recession continued to weigh on oil prices. The September delivery WTI crude oil futures on the New York Mercantile Exchange fell by 58 cents, or 0.79%, to close at $72.94 per barrel 【Metals】 London metals fell, with London copper down more than 1.84%, London tin down more than 2.3%, London aluminum down $14, London zinc down $20, and London lead down more than 4.5%.

【Macro News】

U.S. July Service Sector Expands, Business Sentiment Generally Positive. The Institute for Supply Management (ISM) stated that the U.S. service sector economic activity expanded in July. This trend has only been interrupted three times since the early stages of the pandemic, with two interruptions in the past four months. The services PMI was 51.4, marking the 47th expansion in 50 months. Steve Miller, Chairman of the ISM Services Business Survey Committee, mentioned that the rise in the composite index was the result of a 5-point average increase in business activity, new orders, and employment indices, while the supplier deliveries index decreased by 4.6, partially offsetting the increase. Respondents once again indicated that rising costs are affecting their businesses, but they generally hold a positive view on business activities, believing that business activities are stable or gradually expanding. Regarding the upcoming presidential election, respondents remain cautious, with one expressing concerns about possible tariff increases. Many respondents noted that despite rising costs, supply chain performance has stabilized.

Chicago Fed President Goolsbee: The Fed Will Not Overreact. Chicago Federal Reserve Bank President Austan Goolsbee reiterated in a media interview on August 5 that the central bank's role is not to react to weak employment data for a single month. He added that market volatility is much higher than the Fed's actions. Goolsbee stated that there are some worrisome indicators, such as an increase in consumer loan delinquencies, but economic growth remains at a "fairly stable level." "The employment data is weaker than expected, but it doesn't look like an economic recession. I do think you need a forward-looking perspective on the economy to make decisions." He emphasized that the monthly non-farm payroll figures have a margin of error of 100,000, so caution is needed in drawing major conclusions.

UBS: Now Expects the Fed to Cut Rates by 100 Basis Points This Year. UBS currently expects the Fed to cut rates by 100 basis points this year, higher than the previous forecast of 50 basis points. In its report, UBS stated that unless the August employment report shows strong performance, UBS believes the Fed will begin a easing cycle at the September meeting, cutting rates by 50 basis points. "Our fundamental judgment remains that the U.S. economy will avoid a recession, and the growth rate will remain close to the trend level of around 2%. With interest rates at a 23-year high, the Fed has enough flexibility to support the economy and the markets." UBS emphasized that overall household financial conditions are good, real income is growing, average debt servicing costs are still lower compared to historical averages, and total net wealth has increased by 37% since the start of the pandemic.

Sahm, Creator of the Sahm Rule: The U.S. Economy Has Not Yet Entered But Is Close to a Recession. Former Federal Reserve economist Claudia Sahm stated that while the U.S. has not yet entered a recession, it is "alarmingly close to a recession." She expects Fed policymakers to potentially readjust their policies to take into account the increasing risks. "The increase in the unemployment rate is consistent with being 'early in a recession,'" Sahm mentioned on Bloomberg Surveillance last Friday, referring to the unexpected rise in the unemployment rate in last week's employment report. "We may not have reached that point yet." However, the situation is getting closer and closer, which is worrying.”

Goldman Sachs strategist: Investors should reduce exposure and hedge risks as US stocks plummet. Tony Pasquariello, global head of hedge fund business at Goldman Sachs, said that as the decline in US stocks widens, investors should hedge their risk exposure even if they have quality assets. Pasquariello wrote in a report to clients, "Sometimes you have to step on the gas, sometimes you have to step on the brake, I tend to reduce exposure." He added that it is hard to imagine August as one of the months when investors should take on significant portfolio risks. On the other hand, corporate buybacks should be meaningful in August, "I think the next month will be a balancing act, without any clear deviations," he wrote. When it comes to choosing between going long on quality assets and hedging further to reduce core portfolio risks, Pasquariello leans towards the former.

HSBC strategist: Models show further decline in the stock market. HSBC stated that the stock cycle model indicates that the market is currently in a "sell-off" mode, which typically lasts for a month, with the S&P 500 index averaging a 10% decline. Strategists including Duncan Toms and Max Kettner wrote that there is still room for further development in the market's general pullback. They stated, "Sell-offs are often relatively short-lived and may provide opportunities to tactically increase risk exposure, but now is not the time, as sentiment indicators suggest it is too early to buy on dips." The model is signaling the most pessimistic since October 2022.

Is it untimely to raise interest rates? Bank of Japan faces criticism after stock market crash. The Bank of Japan's tightening of monetary policy last week has sparked a wave of criticism, leading to a historic plunge in the Japanese stock market and exacerbating global market turmoil. This may put any further rate hike plans on hold. "The Bank of Japan needs to be respectful of economic data and the market," said Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute and former Bank of Japan official. "In the face of poor economic data, the Bank of Japan still raised rates, indicating that it is not paying attention to the data." Bank of Japan Governor Haruhiko Kuroda reiterated last week that the central bank decided to raise rates as economic and inflation data indicated developments in line with previous expectations. He also stated that as long as this trend continues, rates will continue to rise. However, analysts are now beginning to believe that the central bank pulled the trigger too early in the face of the most severe sell-off in the Japanese stock market in decades. Many are adjusting their expectations.

[Stock News]

TSMC (TSM.US) rated as top pick by Morgan Stanley. TSMC has been listed as a top pick by Morgan Stanley as the company's valuation is seen as attractive after a recent weakening in stock price. Analyst Charlie Chan at the bank wrote, "We like TSMC for its quality and defensive nature in a prolonged semi-downturn cycle. Price confirmation and strong ongoing AI capital spending should be key catalysts." She also mentioned that TSMC should be able to achieve a gross margin of over 55% by 2025 and gradually approach the 60% level between 2028 and 2030 after achieving economies of scale at its overseas fabs Currently, TSMC has fallen more than 20% from its peak in July.

Google (GOOG.US, GOOGL.US) lost in the antitrust lawsuit by the U.S. Department of Justice regarding default search engines. A federal judge ruled on Monday that Google's payments to make its search engine the default option on smartphone web browsers violated U.S. antitrust laws, marking a key victory for the U.S. Department of Justice. Judge Amit Mehta in Washington stated that the $26 billion paid by Google, a subsidiary of Alphabet Inc., effectively prevented any other competitors from succeeding in the market. Antitrust enforcers alleged that Google illegally maintained a monopoly over online search and related advertising. The government agency stated that Google has paid billions of dollars to companies like Apple, Samsung Electronics, and others over decades to make its search engine the default option on smartphones and web browsers. This has helped Google become the most widely used search engine globally, generating over $300 billion in annual revenue, with a majority coming from search advertising