- Unwinding of yen carry trades slows down
- US recession concerns take a back seat
The dollar rose in European trade on Tuesday for the first time in three days, holding ground above 7-month lows as most global stock indices rebound while the unwinding of the yen carry trades slowed down.
The gains come after remarks by Fed officials reduced concerns about a US recession, with investors now waiting for more data on the US economy.
The Price
The dollar index rose 0.55% to 103.23, with a session-low at 102.68.
The index closed down 0.55% on Monday, marking seven-month lows at 102.16 as US yields tumble.
Markets Rebound
Asian and European stock markets rebounded today with US stock futures rallying after yesterday’s blood bath, with concerns about recession fading.
Fed Remarks
Fed officials on Monday refused the idea that weak jobs data in July means the economy is heading for recession, however they did assert the need to cut interest rates to prevent such a scenario.
San Francisco Fed President Mary Dale said she’s keeping her mind open on cutting interest rates as needed.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve in September stands at 75%.
- The precious metal holds ground above two-week low
- Calm spreads in global markets as yen dips
Gold prices rose in European trade for the first time in four days, holding ground above two-week lows as calm spread in the markets and the yen gave up some of its gains.
Gold’s rebound comes amid increasing bets on US rate cuts, following somewhat bearish remarks from several Fed officials.
Prices
Gold prices rose 0.3% today to $2418 an ounce, with a session-low at $2394.
On Monday, gold prices lost 1.35%, the third loss in a row, plumbing two-week lows at $2364.
The losses came amid a tense atmosphere in the global markets after the rapid unwinding of the yen carry trades, and the rush away from risky assets.
Fed Remarks
Fed officials on Monday refused the idea that weak jobs data in July means the economy is heading for recession, however they did assert the need to cut interest rates to prevent such a scenario.
San Francisco Fed President Mary Dale said she’s keeping her mind open on cutting interest rates as needed.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve in September stands at 75%.
The SPDR
Gold holdings at the SPDR Gold Trust fell 0.57 tonnes yesterday to a total of 844.9 tonnes, the lowest since July 26.
- Risk aversion and jittery moves control the markets
- Continuation of rapid unwinding of yen carry trades
- Investors rush to shake off risky assets
- US economy heads for recession faster than expected
Like the ominous Black Monday in 1987, and like the financial crisis in 2008 and the Covid 19 outbreak in 2020, global markets sustained massive losses on Monday.
Traders engaged in rapid unwinding of yen carry trades, while rushing to sell off riskier and higher yield assets.
Global stocks plunged as investors worry about a potential US recession in 2024.
What happened on Monday?
Global stock markets sustained heavy losses, led by the tech sector.
Japan’s Nikkei index fell 12.4%, the heftiest one-day loss since 1987, marking 10-month lows at 31,156.
The Dow Jones Stoxx Europe 600 tumbled 2.2%, hitting seven-month lows.
On Wall Street, Dow Jones fell 2.6%, plumbing two-month lows.
The S&P 500 index slid 3.0%, hitting three-month lows.
The NASDAQ lost 3.0%, hitting three-month lows.
That was the third loss in a row for these US indices, and is considered the worst session on Wall Street since September 13, 2022.
Minerals Market
Global minerals prices sustained losses as well as traders rushed out of the commodity markets including the usual safe havens.
Gold prices fell 1.35% to a two-week low at $2364 an ounce.
Silver prices fell 4.6% to a three-month low at $26.94.
Crypto Market
Despite recent positive factors that boosted the crypto market, including the launch of ethereum exchange traded funds, and positive support from Republican presidential candidate Donald Trump, cryptocurrencies nonetheless were pummeled similarly.
Bitcoin lost 7% on Monday, hitting a six-month low at $49,577.
The Causes Behind the Collapse
First, the rapid unwinding of yen carry trades after the Bank of Japan raised interest rates last week to 2008 highs.
Second, a string of weak US data showed the world’s biggest economy might be heading for recession faster than expected.
Tense Atmosphere Grips Most Major Financial Markets
- Continued acceleration of carry trade unwinding due to the Bank of Japan
- Broad rush to exit high-risk assets
- The US economy is heading into recession faster than expected
Similar to what happened on "Black Monday" in 1987, the global financial crisis in 2008, and the COVID-19 pandemic in 2020, most global markets collapsed yesterday, Monday, as a tense atmosphere gripped most major financial markets.
There was widespread activity in open selling, due to the acceleration of carry trade unwinding and the global rush to exit riskier assets with high returns.
Most global stock markets entered a state of collapse as investors' concerns grew that the US was heading into a recession faster than expected.
What Happened in Global Markets on Monday?
Global Stock Markets
There was significant open selling activity in most global stock markets, led by major stocks and technology sector shares.
- The Nikkei index fell by 12.4%, the largest daily loss since Black Monday in 1987, reaching a 10-month low at 31,156 points.
- The Dow Jones Stoxx Europe 600 index dropped by about 2.2%, marking the third consecutive significant daily loss, reaching a 7-month low at 479.83 points.
US Stock Indexes on Wall Street
- The Dow Jones Industrial Average of major US companies fell by 1034 points, or 2.6%, to 38,703 points, hitting a two-month low at 38,500 points.
- The broader S&P 500 index slid 160 points, or 3.0%, to 5,186 points, reaching a three-month low at 5,119 points.
- The tech-heavy Nasdaq Composite index lost 545 points, or nearly 3.0%, to 17,895 points, reaching a three-month low at 17,435 points.
- Yesterday's loss marked the third consecutive daily loss and was the worst session on Wall Street since September 13, 2022.
Metals Markets
Global metal prices moved contrary to positive expectations due to the sharp rise in the Japanese yen and reduced bets on leveraged financial assets.
- Gold prices fell by 1.35%, reaching a two-week low at $2,364 per ounce.
- Silver prices dropped by 4.6%, reaching a three-month low at $26.94 per ounce.
Cryptocurrency Market
Despite the positive environment in the cryptocurrency market, especially after the recent launch of Ethereum exchange-traded funds on US exchanges, along with positive comments from the Republican presidential candidate "Donald Trump" about the crypto and digital currency industry, digital currency prices were not immune to open selling linked to the current significant rise in the Japanese yen.
The price of the digital currency "Bitcoin" fell by about $4,128, equivalent to 7.0%, reaching a six-month low at $49,577 per unit.
Tense Atmosphere
A tense atmosphere dominated most global markets, as the pace of investors exiting high-risk, high-return assets accelerated.
Main Reasons Behind This Tension:
- First, the acceleration of carry trade unwinding after the Japanese central bank raised Japanese interest rates to their highest levels since 2008 last week.
- Second, the continued release of weak economic data in the United States, indicating that the world's largest economy is heading towards recession faster than previously expected, reigniting fears that the Federal Reserve might delay early rate cuts in the US.
Opinions and Analyses
- The managing partner at Harris Financial Group, "Jamie Cox," said: "The sales that manifest through wild market fluctuations are sharp and fast but usually short-lived."
- It's clear that markets are uneasy about the divergent paths of central banks, leading to a lot of violent volatility.
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