I. Performance of Global Equity Indices (in US dollars)
Data source: Bloomberg, 2024/08/19-2024/08/25, compiled by Tiger Brokers
II. Key Market Themes
i. Non-Farm Revisions and Powell's First Official Rate Cut Announcement Boost Market Sentiment
Last week, the U.S. non-farm payrolls data underwent its official annual revision. The data showed that from April 2023 to March 2024, non-farm job additions were revised down by a total of 818,000, averaging a monthly downward revision of 68,200. Despite the significant downward revision, it did not exceed market expectations, and U.S. stocks continued to rise after the data was released. This confirms our analysis from last week: the market is most concerned with the moment of data release and tends to downplay subsequent revision results.
At the same time, Powell's speech at Jackson Hole was notably dovish, marking his first clear and definitive stance on rate cuts. His statement, “The time for adjusting policy has arrived,” ignited market enthusiasm. From his comments, two key pieces of information can be summarized:
first, “The direction of inflation is clear”; in other words, the anti-inflation mission is over, and future policies will downplay inflation impacts. Second,
“we do not want or welcome further cooling of the labor market”; this indicates that the Federal Reserve has officially begun its next phase of “stabilizing the economy.” Given the previous stance, we believe the Federal Reserve now has ample time and space to initiate preemptive rate cuts to ensure a successful economic soft landing.
Overall, whether the Federal Reserve can accurately forecast and act in advance over the next year will determine the trajectory of the U.S. economy and global capital markets. While market sentiment has improved, it remains precarious, with both bulls and bears still fluctuating. The pace and path of future rate cuts will be crucial factors.
Data source: CME Group, compiled by Tiger Brokers
ii. A Week of Panic, a Week of Frenzy: Navigating Rate Cut Trades Amid Market Chaos
One word to describe the recent market is “chaos.” Non-farm data disappoints, trades on recession; CPI beats expectations, trades on rate cuts; retail data exceeds expectations, trades on soft landing… This week big tech rises, next week small-cap stocks soar, with market styles in disarray; this week panic-driven sell-offs, next week frantic buying, investor sentiment is confused.
Looking at the market, the biggest debate right now is whether a recession is imminent. Interestingly, macro conditions are currently in a transition phase between slowing growth and monetary easing, with opposing forces impacting market pricing. Historical data shows that in this phase, commonly used economic leading indicators like PMI and non-farm payrolls often display conflicting signals.
Currently, we believe that the impact of high interest rates on the economy is relatively limited, with the effect of slower growth being minor, making a scenario of rate cuts without a recession more likely. Looking back at history, similar situations occurred in 1995 and 2019, where localized economic weakness and preemptive rate cuts were successfully executed, leading to stable asset performance.
Data source: Bloomberg, compiled by Tiger Brokers
iii. NVIDIA Earnings Report: Will It Revive Big Tech or Collapse the Market?
On August 28th after the market close, the world will be watching NVIDIA’s $英伟达(NVDA)$ latest earnings report. Recently, NVIDIA’s stock price has experienced significant volatility due to macroeconomic sentiment and shipment delays, with a maximum pullback of over 30% before quickly rebounding. The market capitalization has also returned to 3 trillion, second only to Apple $苹果(AAPL)$ .
Firstly, regarding the shipment delays, we maintain our previous view that the delay of NVIDIA’s B-series chips by one quarter will have minimal financial impact on the company. Additionally, this event has already been fully priced in and absorbed; during the conference call, the management is expected to provide more comprehensive explanations or offer more confidence to the market.
From the supply chain perspective, downstream cloud providers continue to expand capital expenditure, and upstream companies like TSMC $台积电(TSM)$ and Micron $美光科技(MU)$ are running at full capacity. NVIDIA’s every move is closely scrutinized. Q2 earnings data is likely to meet or slightly exceed expectations, with no major surprises or negative shocks expected. The stock price’s movement will largely depend on the guidance for the next generation of shipments. On the other hand, the recent decrease in the number of outstanding NVIDIA PUT options reflects that market panic about the earnings report is not significant. Therefore, we maintain a neutral to slightly optimistic stance.
Data source: Bloomberg, compiled by Tiger Brokers
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