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Morning Research Notes - 06.08.24
On Monday night, Wall Street faced significant turmoil with major indices plummeting as the VIX index spiked, reflecting widespread investor fear following Japan’s market crash and fears of a global recession. In response to this uncertainty, spot gold decreased by 1.8% to $US2400.32 per ounce, Brent crude fell by 0.3% to $US76.60 per barrel, and iron ore prices fell by 0.3% to $US103.6 per tonne. The VIX index, measuring market volatility, increased by 65% to $US38.57.
On Monday, panic spread across Wall Street as the S&P 500, Dow Jones, and Nasdaq Composite all saw significant declines, following Japan’s largest one-day market fall since 1987. The VIX index spiked to its third-highest level of all time, indicating extreme fear. Economist Jeremy Siegel called for an emergency rate cut by the Federal Reserve, but Chicago Fed president Austan Goolsbee urged caution, noting that the economy was not yet in recession. Despite a rough start, with major tech stocks like Nvidia and Apple plummeting, the market saw a midday turnaround. This was partly due to positive service PMI data, contradicting weak jobs data from the previous week, suggesting the economy may be slowing but not in full recession.
Yesterday, there was a global sell-off in the financial, commodity, and crypto markets amid fears of a recession. The ASX 200 closed 3.84% lower. This trend was pronounced across all sectors and indices. Materials, Financials, Info Tech, Health Care, and Utilities saw price falls of 2.26%, 4.98%, 6.60%, 1.79%, and 2.11% respectively. The commodity markets also faced pressure from recession fears, with Aluminum, Copper, Zinc, and Nickel dropping 2.15%, 3.97%, 4.03%, and 3.06%.
In other news, Liberum downgrades BHP, Rio, Anglo to sell, Emergency Fed rate cut seems unlikely: Pantheon, and Coronado revenue slumps 10pc. (Source: AFR)
Chart of the day
Several indicators are suggesting the US economy may be heading for recession, including an inverted yield curve and high interest rates. The Federal Reserve’s actions, such as increasing interest rates and a reduction in its balance sheet size, are good signs in determining whether a recession is likely to occur and how severe it might be. Economists are divided on the likelihood of a recession; some believe the Fed’s measures can prevent it if inflation slows down, while others are more pessimistic. The strength of the U.S. economy and the Fed’s response will be key factors in either avoiding or mitigating a recession. Additionally, ongoing uncertainties from the COVID-19 pandemic and geopolitical tensions, such as Russia’s invasion of Ukraine, add to the economic instability. The situation remains fluid, with the Fed’s decisions playing a pivotal role in shaping the economic outlook.
Source: World Economic Forum
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