In the early morning of the 23rd Beijing time, the US stock market closed lower on Thursday, with the US Treasury yield rising and the Nasdaq falling 300 points. The market is convinced that the Federal Reserve will cut interest rates in September. Investors are waiting for Powell's speech on Friday. The number of initial jobless claims in the United States last week remained flat, indicating that the labor market is gradually slowing down.
The Dow fell 177.71 points, a decline of 0.43%, to 40,712.78 points; the Nasdaq fell 299.63 points, a decline of 1.67%, to 17,619.35 points; the S&P 500 index fell 50.21 points, a decline of 0.89%, to 5,570.64 points.
On Thursday, US Treasury yields rose, with the yield on 10-year Treasury bonds rising by 8.6 basis points to 3.862%. The yield on 2-year Treasury bonds rose by 9.4 basis points, breaking the 4% mark, to 4.016%.
The prospect of a Fed rate cut remains a focus of the market. The minutes of the July meeting of the Federal Reserve were released on Wednesday. The minutes showed that "several" Federal Reserve officials believed there were reasonable reasons for a rate cut in July, but "the majority" believed that if future data continued to meet expectations, it would be "quite likely" appropriate to lower the key interest rate at the September meeting.
In addition, the US Department of Labor, on Wednesday, revised down the total non-farm employment figure for the full year ending in March by 0.818 million, indicating that the strength of US employment growth may be less robust than previously reported.
Elisabeth Kopelman, an economist at Nordstan Bank, pointed out, "The minutes of the meeting are retrospective, but they confirm the moderate signal sent by Fed Chairman Powell after the meeting. Since the July meeting, these plans should have been further supported by weak data, and we expect Powell to send a clear signal in his speech at Jackson Hole tomorrow."
After a significant downward revision in the full-year non-farm employment data and the reinforcement of the rate cut rationale in the minutes of the Federal Reserve meeting, traders now expect a 100 basis point rate cut this year.
According to the FedWatch tool of CME Group, traders currently estimate a 100% chance of a decrease in borrowing costs next month, but there are differences in expectations for the extent of the decrease.
BlackRock's Global Chief Investment Officer for Fixed Income, Rick Rieder, said that the Federal Reserve needs to significantly lower interest rates by 50 basis points at the September meeting to revitalize economic growth and alleviate consumer debt pressure. He predicts that the Fed may cut rates by 25 basis points at a series of meetings in 2025.
The Federal Reserve has maintained the benchmark interest rate at the highest level in over 20 years since July 2023. Signs of cooling inflation and labor market pressure have reinforced investors' expectations that policymakers will cut rates by a total of about 100 basis points at the last three policy meetings in 2024.
The market is awaiting a speech from Federal Reserve Chairman Powell.
Traders will turn their attention to Federal Reserve Chairman Powell's speech at the Jackson Hole Economic Symposium on Friday, hoping to gain further insights into any clues about the scale of the rate cut next month, and whether the borrowing costs will continue to decline at subsequent policy meetings.
Some analysts believe that the dovish tone of the Federal Reserve meeting minutes will make Powell's speech outdated.
Daniel Morris, Chief Market Strategist at BNP Paribas Asset Management, said, "Don't expect any surprises at the Jackson Hole Symposium. There has already been enough communication before this. What they least want to do is disrupt the market."
The minutes of the Federal Reserve's meeting in July leaned dovish, clearly indicating that the Fed will cut rates in September. This is the most information Powell can reveal in his speech at Jackson Hole on Friday, as the Fed decides on policy at every meeting.
This will create a contradiction between traders' overly optimistic expectations of four rate cuts before the end of the year and the possibility of the Fed cutting rates only twice or three times.
The interesting thing about meeting minutes is that some Fed officials believe that if the Fed sends a signal and the market has already digested the rate cut expectations, then the labor market data has deteriorated enough to support their level of rate cuts.
Analysts said, 'The vast majority of people believe that a rate cut in September is possible, so it's a sure thing. But we can see that as of December, forward pricing indicates a rate cut of about 95 basis points, which means that the Fed will cut rates at every remaining meeting this year, and one of them will be a significant rate cut. If you listen to comments from Kansas City Fed President Jeffrey Schmid and others, you will find that this view is very optimistic.'
The Fed is more likely to skip the November meeting to reach an agreement on the rate cut, so the federal funds rate will ultimately be reduced by only 50 basis points this year.
However, any rise in yields is attractive. Sensitized by interest rates, the yield on two-year US Treasury bonds has risen above 4%, a level that may attract investors to lock in yields, as the Fed's slow rate cutting approach will accelerate when data begins to indicate an economic downturn.
Multiple Fed officials give speeches.
Kansas Fed President Schmid said on Thursday that he would like to refer to more economic data before supporting any decision to begin easing. Schmid acknowledged that inflation is moving in the right direction while believing that the Fed should remain patient.
He said, 'For me, it makes sense to be concerned about some of the data in the coming weeks. Before we take action - at least before I take action or propose action - I think we need to see more data.'
Boston Fed President Collins said on Thursday that she expects the Fed to start easing soon and that a gradual and orderly rate cut may be appropriate.
Collins said, "The data will tell us what kind of pace is reasonable. There is no predetermined path. I think our overall situation is good. It is very important to maintain this situation in the context of reducing inflation."
Collins said that the revised non-farm employment data is in line with expectations, "The unemployment rate is still very low. Overall, our labor market is quite healthy, and it's important to maintain a healthy labor market."
Philadelphia Fed President Harker said on Thursday that as long as the data performs in line with his expectations, he supports cutting rates in September.
Harker said in an interview, "For me, if the data we receive from now until then does not have any surprises, I think we need to start the rate cut process." Harker said that the scale of any specific action is not as important as the overall rate cut magnitude, and he pointed out, "I think a slow, deliberate rate cut is the right approach."
Harker said that the business people he has been in touch with are calling for predictable action, and do not want rate cuts to be just as aggressive as the rate hikes in the spring of 2022, when rates were raised from near-zero levels.
Harker does not have voting rights on the Federal Open Market Committee this year.
Economic data.
On the economic data front on Thursday, the U.S. Department of Labor reported that the number of Americans filing new claims for unemployment benefits increased by 4,000 to a total of 0.232 million for the week ending August 17th. For the week ending August 10th, the number of ongoing claims for unemployment benefits rose slightly to 1.86 million, implying increased difficulty for the unemployed in finding work.
The report shows that the number of initial unemployment claims in the United States last week has hardly increased, indicating that the labor market is gradually slowing down.
US existing home sales in July increased for the first time in five months, indicating that the real estate market is expected to stabilize as mortgage rates decline.
Data released by the National Association of Realtors (NAR) on Thursday showed that contract volume in July increased by 1.3% compared to the previous month, the slowest growth since July 2010, with an annualized volume of 3.95 million households. Lawrence Yun, chief economist at NAR, said, 'Although home sales have seen a slight increase, they are still sluggish. However, consumers now have more options and affordability has increased due to lower interest rates.'
According to the NAR report, the median sales price in July increased by 4.2% compared to the same period last year, reaching $422,600, the highest record for July in NAR data.
Focus stocks
NVIDIA is attracting attention. Eric Schmidt, the former CEO of Google, recently stated that large technology companies are planning to invest more and more in NVIDIA-based artificial intelligence data centers, with construction costs potentially reaching $300 billion. Schmidt said, 'I am talking to these large companies, and they told me they need $20 billion, $50 billion, $100 billion - very, very challenging.'
Schmidt said, "If $300 billion flows to Nvidia, you know what to do in the stock market. This is not a stock recommendation." Schmidt did not disclose whether he holds Nvidia stocks.
Schmidt said: "If $300 billion flows to Nvidia, you know what to do in the stock market. This is not stock advice." Schmidt did not disclose whether he holds Nvidia stocks.
On August 21st local time, the National Highway Traffic Safety Administration of the United States announced that Tesla is recalling over 9,000 Model X electric vehicles in the United States. The reason is that a decoration on the roof of these vehicles may come off, increasing the risk of accidents.
It is reported that physical recalls are very rare for Tesla. Previously, Tesla mainly solved the problems of their automobiles through over-the-air (OTA) updates. According to data from Bizzycar, a recall management platform developer, this year in the first half, Tesla has recalled nearly 2.6 million vehicles in the United States due to safety issues, second only to Ford Motor.
AMD announced in a community blog post on Wednesday that it is preparing a new Windows 11 24H2 performance patch to further improve the performance of the Ryzen 9000 series processors. After releasing the Ryzen 9000 series desktop processors based on Zen 5, AMD officially claimed a 16% increase in instructions executed per clock cycle.
According to reports, Apple will make significant adjustments to its App Store business. Matt Fischer, the Apple Vice President who had been in charge of the App Store business for 14 years, will leave in October this year, and the App Store team will be split into two departments.
The two departments after the split will be responsible for managing Apple's own App Store and the distribution channels of third-party applications. The two new leaders are senior executives from the original App Store team.
The App Store is one of Apple's most profitable businesses, generating $20 billion in profit for Apple each year. Its software services business, which has a gross margin of around 70%, is nearly double that of Apple's hardware gross margin. This business is particularly important for Apple in the context of stagnant hardware sales growth.
Microsoft announced on Wednesday that it has adjusted the structure of its earnings report to better showcase the contribution of artificial intelligence technology to its business. The tech giant has shifted some search and news advertising revenue from the Intelligent Cloud segment to the Azure cloud computing segment.
Microsoft explained that the revenue of its Nuance division, which includes services like artificial intelligence and voice technology, will now be attributed to the Productivity and Business Processes segment, where the Office suite is located. The Productivity and Business Processes segment covers products such as Office, Exchange, SharePoint, while the Intelligent Cloud segment includes Azure and server products.
This adjustment is to keep Microsoft's reporting structure consistent with its business management approach and ensure that investors can have a clearer view of the company's progress and achievements in the field of artificial intelligence. Therefore, Microsoft restated the revenue growth of each department in the previous fiscal year and made corresponding modifications to the forecast for the July to September quarter.
Amazon has added an annual plan for Prime members and expanded its discounted subscription to all Prime Access members, expanding the scope of its department store delivery subscription service. According to a press release from Amazon on Wednesday, August 21, these new products build upon the success of the department store subscription launched in April.
Amazon stated in the press release, "Since the launch, we continue to see strong growth in general merchandise subscription registrations and positive customer feedback. Subscriptions bring immediate value to users as they save on general merchandise delivery fees and make their shopping experience for general merchandise more convenient."
According to the press release, through the subscription, orders worth over $35 from channels such as Amazon Fresh, Whole Foods Market, and Amazon.com can enjoy unlimited general merchandise delivery. This service has been launched in 3,500 towns in the United States.
Software company Snowflake exceeded expectations for quarterly performance and slightly raised its annual product revenue guidance.
Analysts were disappointed by the same-store sales of clothing retailer Urban Outfitters in the second quarter.
In other market news, the West Texas Intermediate (WTI) crude oil futures price for September delivery on the New York Mercantile Exchange rose by $1.08, or 1.5%, to close at $73.01 per barrel.