August 4, 2024 began with global financial markets in free fall. After Asian markets opened, circuit breakers were triggered in South Korea and Japan, Thailand halted trading on the JPY/USD pair, and U.S. equity futures tumbled overnight. Nvidia (NVDA) dropped below $98 per share in after-hours trading, on track to test the pre-earnings gap near $95.
Recession or Just Panic?
Some dismissed Friday’s U.S. unemployment report as overblown — pointing to seasonal factors (heatwaves, hurricanes), and statistical distortions from immigration — arguing that one month of data doesn’t confirm a recession. But markets didn’t wait for confirmation. After a disappointing manufacturing PMI earlier last week, recession fears became hypersensitive.
Goldman Sachs raised its 12-month U.S. recession probability from 15% to 25%, reflecting growing unease.
While bulls cite strong GDP growth and projected S&P 500 earnings for 2024/25, that optimism hasn’t prevented a short-term global selloff.
The Yen Carry Trade Collapse
The true catalyst? A violent unwind of the yen carry trade.
Since the BOJ’s rate hike last Wednesday, the JPY/USD exchange rate surged 7% in five days — the same magnitude of change seen over the past five months, now compressed into a single week. In the hyper-leveraged FX market, such a move is devastating.
While short interest in yen has declined 50% since mid-July, roughly 97,000 contracts remain. Forced unwinds continue, igniting global risk asset liquidations.
The Hidden Fuel of the Bull Market
QQQ’s rise since late 2022 has closely mirrored the yen’s depreciation. As USD/JPY climbed, capital flowed into U.S. megacaps — especially semiconductors — funded by cheap Japanese liquidity. With Japan’s GDP at $4.23 trillion and the “Mag 7” tech stocks recently surpassing $10 trillion in market cap, the scale of this trade becomes clear.
In 2018, the Fed’s QT sparked a liquidity crisis. In 2024, the crisis stems from yen liquidity being pulled.
Global Liquidation Event Unfolding
This isn’t just a correction — it’s a global liquidation event.
• Nasdaq futures: -4%
• NVDA: -11%, sliced through $95 support
• Mag 7: AAPL -10%, META -10%, GOOG -9%, AMZN -10%, MSFT -9%
• Leveraged ETFs: FNGU -20%, SOXL -16% — near 2022 bear market lows
In Asia:
• Nikkei: -12.4%, worst day since 1987
• TAIEX (Taiwan): -8.4%, record drop
• KOSPI (Korea): -10%, halted mid-session
• Hang Seng: -2%
VIX spiked 68%, nearing pandemic levels. Bitcoin crashed below $52,000, ETH under $2,300. Many altcoins were effectively wiped out.
Scenarios Ahead
Worst-case: QQQ returns to December 2022 lows, erasing all post-hike gains.
Best-case: Emergency coordination between the Fed and BOJ, leading to rate cuts and temporary market stabilization.
Rumors Fueling the Panic
1. Buffett’s AAPL Selloff: Reports claim he cut holdings from 8% to 4%. True — but it happened in Q2, and AAPL rose afterward.
2. Nvidia B-series Delay: A rumor of GPU defects delaying shipments. Nvidia has denied the claim, stating testing is on track and impact is under $1B in 2024.
Conclusion
The panic has already started. Monday’s services PMI could steer sentiment — but for now, capital preservation is key.
Deleveraging, raising cash, and waiting for yen stabilization are prudent. Buying the dip can wait.
Rumors suggest the Fed and BOJ will hold an emergency meeting this week on exchange rates and interest policy. Until then, the only certainty is uncertainty.
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