Bas Steins📉 Market Crash?!
The market crashed!!! Did it, really? The Nikkei Index experienced a daily loss not seen since 1987, Intel devalued a lot, as did NVIDIA.
On a larger time-scale, however, the “market crash” in the Dow Jones feels like nothing. And, the Nikkei recovered slightly – today, it had a 10.23% plus.
There are a couple of factors that potentially could have led to the losses.
Yen Carry Trade
The Yen carry trade involves borrowing funds in yen, which has low interest rates, to invest in higher-yielding assets elsewhere. With the recent market crash, investors likely rushed to unwind these trades to avoid further losses, selling off assets in other markets and buying back yen to repay their loans. This sudden repatriation into yen would have contributed to the market crashes, as massive sell-offs drive down asset prices. Moreover, with yen interest rates expected to rise and USD rates to fall, the cost of maintaining yen-funded investments increases, making the carry trade less attractive and prompting more unwinding. This created a cascading effect, amplifying market volatility and the downturn.
The relative difference is of importance here. So even a small increase can bring the whole setup down.
Job Market Report and General Recession Expectation
In July, job growth in the United States decelerated significantly, with the addition of only 114,000 jobs, and the unemployment rate rose to 4.3%, the highest since 2021. Investors' concerns about an economic slowdown were reflected in sharp declines in various stocks, especially in the tech-heavy Nasdaq Composite, which entered correction territory. The disappointing job figures and other indicators, such as deteriorating manufacturing employment and significant layoffs announced by Intel, have heightened worries about a potential recession and raised questions about the Federal Reserve's handling of interest rates.
Despite the overall job market cooling, certain sectors like healthcare, construction, and leisure and hospitality saw job gains in July. However, the information sector experienced a notable job loss. The Sahm rule, an economic indicator, suggests the economy could be nearing a recession. Although some economists, like Claudia Sahm, believe the current unemployment rate increase may overstate the labor market's weakness, there is a consensus on the need to watch for signs of stabilization. The overall slowdown in hiring and concerns over the direction of the labor market continue to weigh heavily on economic outlooks.
Intel, NVIDIA, AMD
Intel, NVIDIA, and AMD were a bit special in the market turbulence of the last days: Intel struggles with “aging” processors that break if operated at a higher load (affecting both, the 13th and 14th generation of Core processors).
AMD, on the other hand, makes losses with their GPUs, and NVIDIA’s stock may just have been due for a correction – after all the AI hype.
Side Note: US brokers down?
According to downdetector.com customers of some of the larger US brokers had issues accessing their accounts or placing new orders – which expectedly – led to conspiracy theories on Twitter. The issues seem to be solved by the time of writing. I could not find any news outlet that picked up these outages, so it probably was just DNS? ;)
