Wall Street has rebounded after a global sell-off triggered by the Bank of Japan raising interest rates, causing the yen carry trade to unwind. The US market was also impacted by a dismal July jobs report, leading to fears of a recession and resulting in plunging stocks and bond yields. However, the market has regained some losses with encouraging economic data this week, leading to the Dow rising above 40,000 and all three major indexes on track for their best week of the year.
The Cboe Volatility Index (VIX) fell to 15 after reaching 65 last Monday, indicating a decrease in fear among investors. While more aftershocks are possible, traders are moving past the initial impact of the yen carry trade unwind. Investors are still cautious, with the Federal Reserve’s upcoming meeting in September looming as economic data continues to be monitored closely. Traders are anticipating a rate cut in September, but some central bank officials have expressed a wait-and-see approach, wanting to see further progress on lowering prices.
Inflation has shown signs of cooling, with consumer prices rising 2.9% for the 12 months ended in July, dropping below 3% for the first time since March 2021. Wholesale price hikes have also slowed, indicating a positive trend in the economy. Retail sales in the US rose 1% in July, exceeding economists’ expectations and highlighting the resilience of the US consumer, a key driver of the economy. This data has paved the way for a potential rate cut in September, although the extent of the cut remains uncertain.
The Russell 2000 index, which tracks US small-cap stocks, has risen this week on the expectation of a rate cut by the Fed. Small-caps typically perform well following the first cut in a easing cycle by the Fed. Before the Fed’s meeting, Chair Jerome Powell is set to speak at an economic summit in Jackson Hole, Wyoming, where he may provide clues about the Fed’s next policy move. Powell’s speeches at past summits have led to market volatility, making his upcoming speech a key event for investors to watch.
Crude oil prices have fallen after OPEC reduced its global oil demand growth forecast for 2024 and 2025, citing softening expectations in China. In corporate news, Starbucks shares surged after CEO Laxman Narasimhan announced his immediate departure, to be replaced by Brian Niccol from Chipotle next month. Walmart shares also rose after reporting strong US sales, while Home Depot shares declined after lowering sales expectations and warning of reduced consumer spending on home improvement projects. Market developments continue to evolve, and updates will be provided as the story progresses.
