Wall Street and Global Markets Volatile Amid Strait of Hormuz Concerns
Market Reactions and Key Financial Developments
By Jamie McGeever
ORLANDO, Florida, Aug 10 (Reuters) - Wall Street wobbled and oil prices leaped 5% on Monday, as hopes of a U.S.-Iran peace deal and reopening of the Strait of Hormuz faded, while investors looked ahead to U.S. inflation data later in the week and remained on alert for more intervention in the yen.
Federal Reserve Outlook
In my column today, I explain why the shock decline in U.S. jobs last month is unlikely to deter the Federal Reserve from raising interest rates. That's because policymakers' favored labor market gauge, the unemployment rate, continues to point them in that direction.
Recommended Reading
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
Top Articles
1. FOMO fuels Wall Street's breakout rally as traders pile in
2. Nvidia, Wall Street firms partner on $500 billion AI financing venture, source says
3. Intel plans $15 billion share sale as turnaround rally lifts stock
4. BOJ's rate-hike path runs into Takaichi's bond market problems
5. China July factory-gate inflation eases to 3-month low, CPI slows
Today's Key Market Moves
Stocks and Sectors
• STOCKS: Nikkei +2% to 2-week high, UK -0.4%, Europe ekes out new record high close. Wall Street in the red: Nasdaq -0.3%, Russell 2000 -0.6%.
• SECTORS/SHARES: Six sectors on the S&P 500 rise, five fall. Tech -1%, energy +4.6%. Intel -4%, Nvidia -3%; Marathon Petroleum +7.5%, Chevron +4.5%.
Foreign Exchange and Bonds
• FX: Yen biggest decliner in G10 FX, -1% through 159.00/$. Dollar index +0.3%. Indonesian rupiah +0.8%
• BONDS: 10-year JGB yield +3 bps, U.S. yields up 4-5 bps across the curve.
Commodities and Metals
• COMMODITIES/METALS: Oil +5%. Gold +1% to 9-week high $4,395/oz.
Today's Talking Points
Hedge Fund Volatility
Situational Awareness and Industry Performance
Shaken, rattled and... ready to roll?
Hedge funds had a turbulent July, epitomized by the saga surrounding Situational Awareness, the AI-focused fund whose portfolio value plunged nearly 70% in the month and that was forced to sell most of its assets to Citadel.
Hedge fund industry research firm HFR says technology funds had their worst month since 2008, with the HFR tech index falling 7%. Analysts at JPMorgan, citing preliminary figures from research firm Pivotal Path, note that TMT Equity Sector hedge funds lost an "unprecedented" 10%, excluding the Situational Awareness loss.
Market Deleveraging and Risk Management
Has the selloff sufficiently cleared the decks? By some estimates, there has been a deep deleveraging, and long AI trades appear to be recovering — the Philadelphia "SOX" semiconductor index is up 10% so far this month. But July was bruising, and funds and prime brokers may want to rethink risks around concentration, volatility, margin levels and liquidity. If funds do rebuild exposure, it may not be as frenzied or as levered as before.
Speculation Liquidation
On the subject of clearing the decks, the historic U.S-Japan FX market intervention in late July sparked speculators' biggest-ever liquidation of net short yen positions in CFTC futures contracts. Funds' net short position collapsed by a record 118,000 contracts — a result of gross shorts plunging 72,000 contracts (the second most on record) and gross longs rising a record 46,000 contracts.
The dollar quickly sank around eight "big figures" to 155 yen from 164, but has already retraced half of that move, crossing back above 159 yen on Monday. The worry for Tokyo and Washington is this shows the market has little to no faith in their strategy, which would be costly in terms of hard dollars but, more importantly, longer-term credibility. As ever, FX traders are testing policymakers' resolve — will the Bank of Japan raise rates next month and outline a more hawkish tightening path? Can it?
Deflating Expectations
Inflation figures from Beijing over the weekend will have disappointed those hoping to see China move out of its multi-year deflationary funk. Prices pressures were expected to cool thanks to lower oil, but not this much — both factory gate and consumer price inflation slowed more than expected.
Among the more discomfiting numbers was annual core CPI, which softened to 0.9%, falling below 1% for the first time since January and an indication that domestic demand remains weak. FX market developments are also worth bearing in mind — although the yuan is significantly undervalued, judging by the huge trade surplus, it continues to strengthen very gradually and is strongest against the dollar since early 2023. On the margins, that could also put further downward pressure on core goods inflation.
What Could Move Markets Tomorrow?
• Developments in Middle East
• Australia interest rate decision
• Brazil inflation (July)
• U.S. Treasury sells $58 billion of 3-year notes at auction
• U.S. earnings including CoreWeave, Super Micro Computer
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Nia Williams)
