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Week in Review: 29 July-2 August 2024

 

Financial Markets

For the third consecutive week, the main stock market indices were negative, with the S&P500 losing 2.1%, and the NASDAQ 100 down by 3.1% on a weekly basis. Both the S&P and the NASDAQ are approaching a near-term support level, but could still fall around 1% next week. The RUSSEL 2000 was also down by a whooping 7.2%, serving as an evidence that money is not rotating within the stock market. Instead, sellers are cashing out of the stock market, and keeping cash and bonds as less risky assets.

For now, the price of Gold has also benefited from the stock market selloff. On a weekly basis, gold has rised 2.3% and it may test the 2500$ level in the near term. Silver has recovered 2.2% but seems weaker than gold - nevertheless, silver may hold the 28$ per ounce level in the near term.



The barrel of WTI fell 4.7% and sits around 73 to 74$ per barrel. WTI has been trading around 78 and on a range that is narrowing in amplitude. Thus, during August we might see a bigger move either to the upside (above 82) or to the downside (below 72). 

Bitcoin fell 11% and is around 61000$. Bitcoin is a risky asset of limited use and can see some strong outflows if the equity markets and liquidity in general are distressed. Bitcoin continues on a downward trend with the next supports around 60000 and 53000$.

The relative strength of the US dollar (DXY) fell to the low end of the range in which it has been trading since April 2024. This decrease may be due to the approaching FED rate cuts, expected to start in September. If the DXY continues falling, the next support should be around 101.

June USM2 money supply was up by 0.3%.

Financial conditions (NFCI) continues on the loose territory, but can reverse trend if the stock market selloff continues.


US bond yields fell drastically this week, and now sit at 3.89% for the 2-year and 3.79% for the 10-year. The uninversion of the yield curve seems to be nearing, which usually corresponds to a recessionary environment.


Comment Section

The main US stock market indices continued correcting, and Friday was particularly negative due to the release of the United States Non Farm Payrolls, which surprised on the downside, indicating reduced job creation. The US economy added 114 000 jobs in July, well below a downwardly revised 179 000 in June and forecasts of 175 000. It is also the lowest level in three months, and below the average monthly gain over the prior 12 months. This important data point signals that the labour market is cooling off. If the unemployment and GDP data also starts coming cooler than expected, it might be the confirmation of a recession.

The FED rate cuts are now on the table, and we can see a run into bonds and out of equities. In the near term, precious metals benefit from the recession fears, but in a few months, if the recession is confirmed, the metals will also fall and cash will be king. When markets bottom, it is the best time to go shopping. It applies to stocks, real estate, cars, and many other assets. When the others are in panic and need money, you get to buy cheap. The next 12 to 18 months will bring a lot of opportunities.

Stay alert, take care, and good luck.



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