"Recession trading" is here! | Overseas major asset weekly report

During the week of July 28th to August 2nd, influenced by the July FOMC meeting of the Federal Reserve, weak US economic data, and Warren Buffett's significant reduction in holdings, the market shifted from expecting interest rate cuts to worrying about deteriorating fundamentals, triggering recession trades. Overseas asset volatility further increased, US bond yields declined across the board, and risk assets overall fluctuated lower.

During this period, the central banks of Japan, the US, and the UK successively held interest rate decisions. The Bank of Japan announced a 15 basis point rate hike and balance sheet reduction, adopting a more hawkish stance than expected. The Federal Reserve maintained the possibility of a rate cut in September, while the Bank of England adopted a hawkish stance on rate cuts.

The market is currently anticipating that the Federal Reserve will cut interest rates by a total of 108 basis points over the remaining three meetings this year, equivalent to four cuts of 25 basis points each, with a suggestion that one of the cuts may be 50 basis points.

The S&P 500 index fell by 2.06% this week, following declines of 1.97% and 0.83% in the previous two weeks. The Dow Jones Industrial Average dropped by 2.10% this week, ending a four-week uptrend. The Nasdaq entered a technical correction range, declining by 3.35% this week, continuing the performance of declines of 3.65% and 2.08% in the previous two weeks.

Small-cap stocks experienced significant declines this week, with the Russell 2000 index falling by 6.67%. The VIX fear index rose by 26.04%.

Chip stocks suffered widespread losses. The Philadelphia Semiconductor Index entered a bear market, pulling back by 21.96% from its closing high on July 10th, and falling by 9.71% this week. The Dow Jones KBW Regional Bank Index fell by 9.09% this week.

Bank of America strategist Michael Hartnett stated that due to the increased possibility of a more severe recession in the US, investors should sell stocks when the Federal Reserve cuts interest rates for the first time.

Further rate hikes in Japan led to a sharp drop in Japanese stocks. The Nikkei 225 index closed down by 5.8%, while the TOPIX index closed down by 6.14%, marking the largest decline since 2016. For the entire week, they fell by 4.61% and 6%.

US Treasury bonds rose for the seventh consecutive week, becoming the preferred safe haven amid fears of a "hard landing" in the US. The yield on the 10-year benchmark Treasury bond fell by 40.35 basis points this week, to 3.7904%.

On "non-farm payroll day," the US dollar fell by over 1%, offshore Chinese yuan rose by over a thousand points to a six-month high, and the Japanese yen rose by over 4.7% this week, approaching 146.

As the risk of a hard landing in the US economy increases, investors are pessimistic about the outlook for oil demand. US oil fell by over 4.7% this week to a two-month low. A weaker US dollar boosted gold prices, rising by over 2.3% this week amid tensions in the Middle East and rate cut expectations.