Frank Zappa, 1940 – 1993
Frank Vincent Zappa (1940 – 1993) was an American musician, composer, and bandleader. In a career spanning more than 30 years.
“So many books, so little time.” – Frank Zappa
Is the Fed fighting its own shadow?
Has the Fed over-cooked it this time by waiting too long to reduce interest rates?
U.S. stock markets threw a wobbly after the latest employment data and after the Fed delayed its first rate cut… again. September 2024 now looks likely for that first cut – but by how much: 0.25% or as high as 0.50%?
The latest batch of bad news for the U.S. economy has actually became bad news for stocks this time. For too long the ‘bad news’ has been taken as ‘good news’, especially regarding the likelihood of a Fed interest rate cut – and for the markets in general.
The Federal Reserve (Fed) is grappling with several challenges, including inflation, interest rates, and the broader U.S. and global economies.
Inflation
The Fed has been trying to control high inflation rates, which have been a significant concern. To combat inflation, the Fed has raised interest rates multiple times. Higher interest rates can help reduce inflation by slowing down borrowing and spending, but they can also slow economic growth.
Interest rates
By increasing interest rates, the Fed aims to make borrowing more expensive, which can help cool down an overheated economy. However, this can also lead to higher costs for consumers and businesses, potentially leading to reduced investment and spending.
Economic growth
The Fed’s policies are a balancing act. While they aim to control inflation, they also need to ensure that the economy doesn’t slow down too much. This balancing act can be challenging, especially when external factors like global economic conditions and geopolitical events come into play.
In essence, the Fed’s efforts to manage these issues can sometimes feel like ‘fighting its own shadow,’ as the consequences of their actions can create new challenges.
The timing of interest rate adjustments by the Federal Reserve is a topic of much debate among economists and policymakers.
Inflation control
The Fed’s primary goal in raising interest rates has been to control inflation. If inflation remains high, the Fed might be cautious about reducing rates too quickly to avoid a resurgence of inflation.
Economic indicators
The Fed closely monitors various economic indicators, such as employment rates, consumer spending, and GDP growth. If these indicators suggest that the economy is still strong, the Fed might delay reducing rates to ensure that inflation is fully under control.
Market reactions
Rapid changes in interest rates can cause volatility in financial markets. The Fed often aims for a gradual approach to avoid sudden shocks to the economy.
Global factors
The Fed also considers global economic conditions. For example, if other major economies are experiencing slow growth or financial instability, the Fed might be more cautious in adjusting rates.
Ultimately, the decision to reduce interest rates involves balancing the need to support economic growth with the risk of reigniting inflation. It’s a complex decision with significant implications for the U.S. and global economies.
Looks like the Fed overcooked it this time – but by how much?
U.S. stocks recovery attempt fizzles out
Stocks closed lower on Wednesday 7th August 2024, failing to fully recover from Monday’s sell-off.
The Dow Jones Industrial Average dropped 234 points to 38763.45. The S&P 500 fell to 5199.50, while the Nasdaq Composite closed at 16195.81.
During the day, the Dow had surged around 480 points, the S&P 500 had climbed 1.73%, and the Nasdaq had risen over 2%.
Dow Jones one day chart 7th August 2024
S&P 500 one day chart 7th August 2024
Nasdaq Composite one day chart 7th August 2024
However, a downturn in Nvidia and other major tech stocks, after an initial rise, led to a significant drop in the afternoon. Nvidia retracted by 5.1%, Super Micro Computer plummeted 20.1% following its fiscal Q4 earnings missing analyst predictions, Tesla fell 4.4%, and Meta Platforms decreased by 1%.
Nvidia one day chart 7th August 2024
One month chart Super Micro Computer 7th August 2024
Nvidia one day chart 7th August 2024
The U.S.10-year Treasury yield continued to rise, increasing by about six basis points to 3.95%, returning to its level before the disappointing job figures last Friday, which had sparked concerns of an economic slowdown.
The Volatility Index (CBOE), the so called ‘fear gauge‘ was trading at around 29, having dropped to as low as 22 earlier in the day. This sharp decrease from Monday 5th August 2024 suggests that investor fears are subsiding, however, they remain higher than at the beginning of the month.
The Volatility Index (CBOE) on 7th August 2024
China’s rival to Elon Musk’s Starlink internet launches satellites to low Earth orbit
On Tuesday 6th August 2024, China launched its inaugural batch of internet satellites, which are expected to be part of a constellation designed to compete with SpaceX’s Starlink.
The constellation, named “Thousand Sails,” comprises over 15,000 satellites in low-Earth orbit that are anticipated to provide worldwide internet coverage.
China plans to have 648 satellites in orbit by 2025 as part of the first phase of the constellation’s deployment, aiming to establish a global internet network, as reported by state media CCTV.
The satellite system will be in direct competition with Elon Musk’s Starlink.
Judge ruling says Google’s monopoly of online searches is illegal
Too much monopolistic power held by too few
A U.S. judge has ruled that Google illegally maintained a monopoly in online searches and related advertising. The lawsuit, brought by the Department of Justice, charged Google with controlling around 90% of the online search market.
It was reportedly noted by the judge that Google’s billions of dollars in investments to become the default search engine on smartphones and browsers could be anticompetitive.
The decision, issued on Monday 5th August 2024, could potentially change how tech giants operate.
It was reported that in his extensive 277-page decision, Judge Mehta remarked, “Google has acted as a monopolist and engaged in anticompetitive practices to maintain its monopoly.”
This represents a significant victory for federal antitrust enforcers who have pursued similar cases against other leading technology companies for illegal monopolistic behaviours.
Companies like Meta Platforms, which operate Facebook and WhatsApp, as well as companies like Amazon and Apple., have also faced lawsuits from federal regulators.
The judgment comes after a 10-week trial where it was argued that Google’s substantial payments to remain the primary search engine have impeded the competition’s ability to challenge effectively.
This is a seismic shift in the way search engines and advertising may operate in the future. Already with the advent of AI, search engines look and feel different.
Recently, OpenAI launched ‘SearchGPT’ – and Microsoft have named it a competitor in the world of search engines.
Times are changing.
U.S. stock markets rise after days of turmoil
U.S. shares gained on Tuesday 6th August 2024, signalling a tentative stabilisation in global markets after a period of significant declines.
The Nasdaq, known for its tech-centric portfolio, along with the Dow Jones Industrial Average and the S&P 500, all ended the day in more positive territory.
This ‘lift’ came after a period of muted activity in UK and European markets, with London’s FTSE 100 experiencing an initial surge before retreating.
In Japan, the Nikkei 225 stock index recorded a substantial rise of 10.2%, or 3217 points, marking its largest single-day point increase following a steep drop the day before.
The recent turmoil in the stock market was triggered on Friday 2nd August 2024 by unsatisfactory U.S. job data for July 2024, which indicated an increase in unemployment, raising alarms over a potential recession.
Additionally, there has been growing apprehension that stocks of major technology firms, especially those with significant investments in artificial intelligence (AI), may have been excessively valued, leading to challenges for some of these companies.
Fickle markets – Japan’s Nikkei sees best day since October 2008
The Nikkei ended the trading day at 34675 on 6th August 2024, up around 10% hitting its largest daily gain since October 2008 and highest ever spike in terms of index points.
This recovery came after experiencing its worst session in history just the previous day. The Nikkei index still sits some 7000 points off its recent high.
The Dow plunged by 1000 points, and the S&P 500 experienced its most significant decline since 2022 amid a worldwide stock market rout
On Monday 5th August 2024, stocks plummeted, marking the Dow Jones Industrial Average’s worst performance in nearly two years, igniting a worldwide market downturn due to concerns about the U.S. economy’s stability.
The Dow fell 1033.99 points closing at 38703. The Nasdaq Composite dropped to close at 16200, while the S&P 500 declined 3%, ending the day at 5186. Both the Dow and S&P 500 experienced their most significant daily losses since September 2022.
Dow 1 day and 5 day charts
The Japanese stock market suffered its steepest fall since Black Monday of 1987, adding to the global market anxiety.
The primary driver of the worldwide market collapse was the fear of a U.S. recession, triggered by the disappointing July jobs report released on Friday.
Additionally, there is growing concern among investors that the Federal Reserve has delayed reducing interest rates to support the slowing economy.
$1 trillion rout as Markets punishes tech stocks
The seven most valuable U.S. tech companies experienced a combined loss of $1 trillion in market value at the start of Monday’s trading session – 5th August 2024
The Nasdaq declined over 3% following its sharpest three-week drop in two years.
Nvidia’s shares fell approximately 6%, while Apple’s dropped more than 4%.
On Monday, as the U.S. markets commenced trading, the market capitalization of the largest tech companies plummeted by about $1 trillion, exacerbating a decline that pushed the Nasdaq into correction territory the previous week.
Markets go up and markets go down
In early trade Nvidia’s market cap decreased by over $300 billion, but it swiftly regained about half of that loss. The chipmaker’s shares ultimately closed down 6.4%, equating to a $168 billion loss. Apple and Amazon saw their valuations fall by $224 billion and $109 billion at market open. Apple’s market cap finished 4.8% lower, a $162 billion decrease. Amazon’s valuation fell by 4.1% at closing, a $72 billion reduction.
Including significant drops in Meta, Microsoft, Alphabet, and Tesla, the top seven tech giants saw a $995 billion loss in market value in the initial moments of trading, although they did recover somewhat as the day went on.
Global stock market rout intensifies as Dow futures dip over 1200 points
U.S. stock futures slumped Monday 5th August 2024 as global markets sell-off centered around potential U.S. recession fears.
About one hour before U.S. stocks open – here’s the situation
Dow Jones Industrial Average futures dropped 1250 points following a 611point loss on Friday 2nd August 2024.
S&P 500 futures are down 4.6% after the benchmark lost 1.8% on Friday 2nd August 2024.
Nasdaq-100 futures lost 6% as big tech stocks take a hit in early trading.
Japan’s Nikkei 225 plunged 12% in its worst day since the 1987 Black Monday crash.
If the Dow Jones decline continues it would be the first 1000 point decline since September 2022.
Short-sighted policy U-turn as the UK Labour government cancels £1.3 billion of computing projects
A real set-back for UK AI global ambition
The new Labour government has withdrawn £1.3bn in funding previously pledged by the Conservatives for technology and Artificial Intelligence (AI) initiatives.
This includes £800m allocated for the development of an exascale supercomputer at Edinburgh University and an additional £500m for the AI Research Resource, which provides computing power for AI. These funds were announced less than a year ago.
The Department for Science, Innovation and Technology (DSIT) stated that although the funds were promised by the former administration, they were not included in its budget. The decision has faced criticism from some within the industry.
Another blow for the UK’s homegrown tech sector.
Bitcoin and Ether sink as $270 billion wiped off Crypto
The cryptocurrency market experienced a significant plunge on Sunday/Monday, 5th August 2024, losing approximately $270 billion in value within a 24-hours.
Both Bitcoin and Ether underwent substantial declines as investors moved away from high-risk assets. This downturn followed the Nasdaq’s worst three-week performance in two years and occurred as the Nikkei 225 reached a low not observed since the Black Monday crash of 1987.
Bitcoin chart – CoinMarketCap – 5th August 2024
Nikkei chart – one year
Berkshire Hathaway sold nearly half its stake in Apple
Warren Buffett’s Berkshire Hathaway significantly reduced its Apple stake last quarter, a surprising decision from the investor known for his long-term focus.
The conglomerate, headquartered in Omaha, reported in its earnings filing that its investment in the tech giant was worth $84.2 billion at the end of the Q2, indicating it sold just over 49% of its Apple shares. Despite the sale, Apple remains Berkshire’s largest equity holding by a wide margin.
It was widely reported that the sale is part of a larger trend of asset liquidation by Buffett during the second quarter, with Berkshire Hathaway divesting over $75 billion in stocks, thereby increasing its cash reserves to a staggering $277 billion.
Japan’s Nikkei suffers worst day since the Black Monday crash of 1987
Japanese stocks entered a bear market on Monday 5th August 2024 as the sell-off in Asia markets continued from the previous week. The Nikkei 225 fell over 12%
These benchmark indices have now declined more than 20% from their peak on 11th July 2024 – the index then touched 42000.
The Nikkei suffered over a 12% loss, closing at 31458, marking its worst performance since the ‘Black Monday’ of 1987. This drop of 4451 points is also the largest point loss in its history.
Year to date, the Nikkei has relinquished all its gains, shifting into a negative territory.
Nikkei one year chart
Nikkei one day chart – down 12.4% on the day a total of 4451 points
U.S. non-farm payroll job growth comes in at 114,000 in July 2024, much less than expected, as unemployment rate rises to 4.3%
In July 2024, U.S. job growth decelerated more than anticipated, and the unemployment rate increased slightly, according to a report from the Labor Department on Friday.
Non-farm payrolls expanded by only 114,000 for the month, a decrease from June’s downwardly revised figure of 179,000 and falling short of the Dow Jones prediction of 185,000. The unemployment rate rose to 4.3%, marking the highest level since October 2021.
Average hourly earnings, an indicator of inflation, rose by 0.2% for the month and were up 3.6% from 2023, both measures not meeting the increases of 0.3% and 3.7% expected.
Following the release of the report, stock market futures extended their losses, and Treasury yields saw a significant drop.
Asia markets fall as Japan’s Nikkei drops 5% to an 8-month low
Japan’s benchmark indices plummeted on Friday 2nd August 2024, with most Asia-Pacific markets lower after a sell-off on Wall Street created recession worries.
The Nikkei 225 index plunged around 5.80% to close at 35909, its most significant fall since March 2020, dipping below the 36000 for the first time since January 2024.
The Nikkei recently record a high of 42000
Nikkei 225 one-year chart 2nd August 2024
Nikkei 225 one day chart 2nd August 2024
The broader Topix index experienced an even steeper decline of 6.14%, marking its worst performance in eight years, ending the day at 2537.
Daiwa Securities emerged as the biggest loser on the Nikkei index with an 18.85% erosion of its market cap.
Other prominent stocks also suffered losses; Softbank Group’s shares dropped over 8%, while trading giant Mitsui recorded a decline of more than 10%.
Amazon, Intel, Meta, Nintendo, Apple, Snap, Qualcomm and others report – here’s a brief round-up
Reports summary 31st July 2024 -1st August 2024
Amazon offers weak guidance citing Olympics and the Trump assassination attempt as cause (consumers are distracted). However, Amazon’s cloud unit reports 19% revenue growth, topping estimates and a 20% increase in business in Q2. Amazon stocks pull back after guidance update.
Intel endures a 22% share plunge dragging down other global microchip stocks from TSMC, ASML to Samsung. Company to cut 15% of workforce, reports quarterly guidance miss.
Meta shares climb 6% on positive earnings data and good revenue forecast. Zuckerberg enthused over AI and how it’s helping create profits suggesting ‘Meta’s advertising growth is proof that BIG AI spending is already paying off.’ However, Meta’s Reality Labs posts $4.5 billion loss in second quarter.
Nintendo profit falls 55% as sales of its ageing Switch console plunge. Nintendo revenue and profit plunged in Q1 as sales of its ageing Switch console decline. Nintendo sold 2.1 million units of its Switch consoles, down 46% on the year. Investors are seeking news surrounding a successor to the Nintendo Switch console.
Apple sales climbed 5%, topping estimates as iPad and services revenue lift despite ongoing issues with iPhone sales slipping in China. Apple is spending more on AI but remains way behind its peers.
Snap shares plunge more than 20% on weak guidance.
Qualcomm beats estimates as phone microchip sales up 12%.
Samsung Q2 revenue and profit comes in above estimates amid strong AI demand.
AMD jumps 5% as global microchip stocks rally. Data centre sales doubled.
Microsoft says OpenAI is now a competitor search and AI
Microsoft’s list of competitors, which is updated regularly, now features OpenAI, previously a long-term strategic ally.
This development follows OpenAI’s announcement of a search engine prototype.
As OpenAI’s exclusive cloud provider, Microsoft leverages OpenAI’s AI models for products aimed at commercial clients and consumers. Microsoft, OpenAI’s largest investor, has reportedly invested some $13 billion in the firm.
Microsoft’s filing lists OpenAI, the entity behind the ChatGPT chatbot, as a competitor in AI solutions, as well as in the realms of search and news advertising. OpenAI recently unveiled a search engine prototype named SearchGPT.
However, recent developments suggest a shift, with both companies encroaching on each other’s domains.
While some opt to directly pay OpenAI for model access, others utilise Microsoft’s Azure OpenAI Service. Additionally, Microsoft offers the Copilot chatbot as an alternative to ChatGPT, accessible via the Bing search engine and Windows operating systems.
Arm issues light earnings guidance but latest results exceed expectations
Arm results exceeded expectations, but earnings guidance disappointed.
The chip-design company has ceased disclosing the quarterly shipment numbers of its chips.
Arm’s shares dropped over 13% in after-hours trading on Wednesday following the chip-architecture firm’s announcement of modest earnings projections for the current quarter and the entire fiscal year.
Shareholders report
Total revenue was a record $939 million, up 39% year-on-year
Royalty revenues were up and amounted to $467 million, this represents a 17% increase.
Licence and other revenue was $472 million, up 72% year-on-year.
Arm’s revenue increased by 39% year-on-year for the quarter ending 30th June 2024, as reported in a shareholder update. The net income reached $223 million, a significant rise from the previous year’s $105 million.
Arm has kept its full year forecast unchanged, projecting revenues between $3.8 billion and $4.1 billion.
For the upcoming fiscal Q2, Arm anticipates revenues ranging from $780 million to $830 million. This projection suggests no mid-range growth, contrasting with some analysts’ expectations of $804.1 million in revenue.
Arm Holdings one day share price mid-day 1st August 2024
Bank of England cuts rate to 5.0% – the first since the Covid pandemic of March 2020 and from the highest rate for 16 years
The Bank of England (BoE) on Thursday 1st August 2024 announced its first-interest rate reduction in more than four years, taking the key rate to 5%.
Although numerous analysts predicted that the Bank of England might announce a reduction in interest rates at its August 2024 meeting, the absence of definitive signals from the central bank left the decision clouded in uncertainty.
The Monetary Policy Committee (MPC) ultimately cast a 5-4 vote in favour of the reduction, with Governor Andrew Bailey stating that the committee would proceed with caution.
Rolls-Royce shares surge to all-time high as dividend is reinstated
Rolls-Royce shares surged over 11% to reach a record high on Thursday 1st August 2024 following the reinstatement of its dividend and an increase in its profit outlook, buoyed by robust first-half results
The British aerospace and defence giant announced an underlying profit of £1.1 billion for the first half of the year and projected this to grow to between £2.1 billion and £2.3 billion for the full year of 2024.
This projection surpasses the previous forecast of £1.7 billion to £2.0 billion made in its full-year results for 2023 and exceeds market expectations.
Rolls-Royce one-year share price as of: 1st August 2024 (12pm)
Markets got to hear exactly what they wanted to hear from Fed chair Jerome Powell
FOMC hold rates steady at 5.25% – 5.50%
Federal Reserve Chair Jerome Powell ended a press conference in which he gave markets exactly what they wanted; a strong indication of a September 2024 rate cut.
Powell says September 2024 rate cut ‘on the table’ if inflation continues to cool.
Federal Reserve officials held short-term interest rates steady but observed that inflation is getting closer to its 2% target.
The FOMC did not signal an immediate rate cut; they reiterated that further progress is necessary before considering rate reductions. However, Federal Reserve Chair Powell’s subsequent statement was markedly dovish, hinting at a potential rate cut in September 2024.
Markets were generally happy with the news after moving up all day in anticipation of the confirmation of a September cut. The Dow Jones, Nasdaq, Russell 2000 and S&P 500 all climbed before and after the news.
ASML and AMD shares climb on positive U.S. geopolitical news
ASML
Shares in the Dutch company ASML soared by around 10% on Wednesday 31st July 2024 following a Reuters report indicating that the firm might be exempt from the broadened export restrictions on chipmaking equipment to China.
Additionally, it was also reported that the U.S. is contemplating an expansion of the foreign direct product rule.
U.S. chip export restrictions to China could exclude allies such as the Netherlands, Japan, South Korea, Israel, Taiwan, Singapore and Malaysia. Taiwan is the home of TSMC, the world’s biggest chip manufacturing plant.
AMD
Shares of global semiconductor companies surged on Wednesday 31st July 2024, lifted by positive earnings within the sector and reports suggesting potential easing of U.S. export restrictions to China.
AMD emerged as one of the standout performers, with its shares climbing over 9% in U.S. premarket trading following a robust second-quarter earnings report.
Euro zone inflation rises to 2.6% in July 2024 – above expectations
In July 2024, inflation in the euro zone unexpectedly increased to 2.6%, as reported by the European Union’s statistics agency on Wednesday 31st July 2024.
Core EU inflation, which omits the more volatile prices of energy, food, alcohol, and tobacco, reached 2.9% in July, surpassing expectations.
Services inflation, a closely monitored indicator, registered at 4% for July, marking a slight decrease from the 4.1% figure in June.
Microsoft shares drop on cloud miss as Azure revenue disappoints
Microsoft reported better-than-expected earnings and revenue for Q4
In extended trading on 30th July 2024, the stock experienced a quick decline as attention was drawn to the less-than-expected Azure revenue, despite management’s forecast for growth in the upcoming quarters.
The company’s total revenue saw a 15% increase compared to the previous year.
Despite surpassing earnings and revenue expectations, Microsoft’s shares dropped by up to 7% in extended trading on Tuesday, with investors concentrating on the underwhelming cloud revenue. However, executives offered a positive outlook, anticipating an acceleration in cloud growth during the first half of 2025.
Microsoft one day chart 30th July 2024
Microsoft’s cloud division holds significant interest for investors, as it competes with Amazon Web Services (AWS) and Google in the artificial intelligence (AI) work arena. These three tech giants are pouring substantial resources into enhancing AI capabilities, aiming to attract both startups and established companies as generative AI technology swiftly progresses.
For Amazon, AWS has served as a vital profit centre for the past ten years.
The camu camu berry is one of the world’s most abundant sources of vitamin C – in fact, one single teaspoon of camu camu powder has 1180% of your recommended daily intake!
The camu camu berry is one of the world’s most abundant sources of vitamin C – in fact, one single teaspoon of camu camu powder has 1180% of your recommended daily intake!
Red peppers come second a vitamin race against the camu camu berry.
Where can the berries naturally be found?
Camu camu berries, scientifically referred to as Myrciaria dubia, originate from the Amazon rainforest. They flourish naturally along riverbanks and floodplains, prospering in moist, marshy zones with acidic soil and plentiful sunshine. These berries are predominantly found in areas of Peru and Brazil.
Harvesting and farming of the camu camu berry
Camu camu berries are harvested both from the wild and through cultivation. Traditionally, in the Amazon rainforest, local communities collect the berries from naturally occurring shrubs along riverbanks.
With the rising demand for their health benefits, commercial farming of camu camu has expanded. These farms are often found in Peru and Brazil, where the conditions are perfect for growing camu camu. Harvesting typically occurs in the rainy season when the berries reach full ripeness.