📈 5 Things You Need to Know to Start Your Week

19th August, 2024

August 19, 2024

Five Things to Start Your Week

Good morning. Our Alpha Portfolio is at +6.5% YTD.

  • Leading: SM Energy Co at +11.6%

  • Lagging: M/I Homes at -5.14%

Market Snapshot

Global markets are broadly in the green, reflecting investor optimism.

  • This is not a market that’s afraid of the imminent “mother of all recessions“ and “de-dollarisation” by BRICS.

If it’s not too obvious by now then our Alpha Portfolio should tell you exactly what we think of this market and how to stay invested in it.

Tech giants are leading the charge, with TSMC up 4.44%, buoying Taiwan’s market, while Chinese e-commerce firms like JD.com (+13.18%) and PDD (+8.15%) are surging, signalling renewed interest in China's tech sector.

Japan's MUFG is also up 8.75%, indicating strength in financials.

Europe's key players, ASML (+6.75%) and SAP (+3.66%), are showing resilience in the semiconductor and software sectors, respectively.

Latin America's standout is Brazilian fintech NU, up 13.63%, indicating bullish sentiment in emerging markets.

Overall, global markets are seeing a positive tilt, driven by tech and financials, but pockets of red in sectors like energy hint at lurking bears…in the shadows.

But what about US markets?

Waiting Mode

US stocks posted small moves after last week’s risk-on rally as traders await signs on the scope of potential interest-rate cuts from the Fed. Shares in European defence companies tumbled after a report that Germany will no longer grant new requests for aid to Ukraine as the government seeks to rein in spending. The yen rallied against the dollar, which traded at its weakest level since March, and Treasury yields declined as the Fed’s Mary Daly told the FT she has “more confidence” that inflation is under control.

Fed in Focus

The key event this week is likely to be Friday when Fed Chair Jerome Powell is expected to give fresh insights on the course of US monetary policy at the central bank’s annual confab at Jackson Hole, Wyoming. Wall Street is betting Powell will signal rate cuts are coming, but as the debate shifts from “will they or won’t they?” to “how big will they go?” stock traders may be left wanting.

Newsworthy

This is what’s caught our eye over the weekend.

And finally, here's what Ali’s interested in this week

It's been exactly two weeks since that huge Japan plunge and that big dive in US stocks. And now that whole selloff is just... gone.

In the US, stocks have more than erased their losses. Japan is still a little bit down. The whole thing (so far) has been a very strange breed of volatility shock. Kind of like an earthquake without any subsequent tremors. The VIX is now comfortably in the range it had been in for most of the year. Same with implied correlations. Credit spreads remain tight.

Whatever that was all about on Aug. 5, one thing that's helped markets has been the US labour data, which has generally been quite benign since then. We got two solid initial jobless claims indicators. Plus the random employment sub-indexes of various surveys (like the Empire Fed report) have been fine. Certainly, for now, the evidence still seems to be pointing to the basic story that the job market is cooling, but not falling apart.

Meanwhile, the market is now strongly assigning odds of just a 25-basis-point cut at the September Fed meeting, with still some shot of a 50. But obviously at this time two weeks ago, people (and market pricing) were all about some kind of emergency action.

Nick Bunker, research director at the job site Indeed, posted a chart that per Indeed’s listings, there's been a slight uptick recently in their wage growth tracker.

It'll be hard for anyone to declare the coast is clear on the labour market front until we get the next non-farm payroll report at the beginning of September. Nonetheless, if the Fed is officially at the point where it can prioritise labour market health (something we are likely to learn more about this week at Jackson Hole), and if the job market is already stabilising and improving, then it's not hard to see why stocks just took the elevator back up.

Ali is the Editor of The Insider Memo, Follow him on X @ASAInsights

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