All-time highs again!

Thoughts of the Day

Although the US stock and bond markets closed early because of the 4th of July Independence Day holiday today, both the S&P500 and the Nasdaq indices closed again at new all-time highs. The ISM Services Purchasing Manager Index (PMI) was weaker than expected (actual 48.8 vs expected 52.5 and previous 53.8. A reading below 50 denotes contraction and above denotes expansion). This drove US bond yields lower and increased the likelihood that the US Federal Reserve may be more open to consider interest rate cuts sooner rather than later.

Buying on dips in the US stock market has been working for months now and will likely continue to work for the months ahead. Stick with the trend!

This is an abridged version of our CIO’s daily writeup for the day, to view the full version, please login or subscribe to a membership plan.

Tradertainment

A simple NFT experiment turned them into multi-millionaires
You’ve probably heard about CryptoPunk (by LarvaLabs), the pixelated images that have made headlines for million-dollar JPEG sales over the years. But have you heard about the story of the two original creators and their journey to multimillion-dollar success? From CryptoPunk to Autoglyphs (generative art) to Meebits, their journey includes people declining millions of dollars in offers for their NFTs. Now, LarvaLabs is part of Yuga Labs, the creator of the Bored Ape Yacht Club NFT collection. PIX (@PixSorcerer) encapsulated their story well in a Twitter thread.

Learn more: https://trackrecordtrading.com/dtppackage/

Day Ahead

  • US Independence Day – US Stock and bond markets will be closed.
  • The UK General Election day.
  • The ECB Monetary Policy Meeting Accounts will be released.
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What Happened Yesterday

Market Movements as of New York Close 3 Jul 24
  • [Fedspeak]
    Goolsbee (2025 voter, known dove): “Getting inflation back to 2% will take time and there is still much data to be had on the economy.”
    (Goolsbee continues to tilt dovishly as he did previously.)
  • In the US Federal Reserve policy meeting minutes from the June 11-12 session, Fed officials acknowledged a slowing US economy and noted easing price pressures but advised caution before committing to interest rate cuts. They cited weak May consumer price index data and developments in the product and labour markets as evidence of decreasing inflation. Despite this, they voted to maintain the policy rate at 5.25%-5.50%, recognizing slower-than-expected progress in reducing inflation compared to their December expectations. Some officials emphasised patience before considering rate cuts, while others noted the potential need to raise rates if inflation rebounded. New projections suggested only one rate cut this year, revised from the three anticipated in March.
  • The US ADP Employment Change showed that +150K workers (vs +160k expected) were added in June 2024, the lowest in five months and an upwardly revised +157K (from +152k) in May.
  • The ISM Services PMI in the US fell to 48.8 (vs 52.5 expected) in June 2024 from 53.8 in May, marking the sharpest contraction since April 2020. The Business Activity Index also dropped to 49.6, indicating the first contraction since May 2020. Additionally, new orders decreased to 47.3 from 54.1, and employment fell to 46.1 from 47.1 (below 50 for the 5th consecutive month). The weakness in the PMI caused the US 2 year bond yield to fall -0.06% from 4.74% to 4.68% in immediate reaction. The weaker-than-expected economic data increased the likelihood that the Fed will consider interest rate cuts soon and boosted risk sentiment and helped stocks higher on the day.
  • The US stock market opened almost unchanged from Tuesday. The S&P 500 and Nasdaq rose through the New York session. Hence, the S&P 500 closed +0.51% higher on the day (high: +0.55%, low: -0.03%) while the Nasdaq increased +0.87% (high: +0.87%, low: -0.08%). The S&P 500 and Nasdaq closed at all time highs. The Dow Jones traded sideways through the session and edged -0.06% lower on the day (high: +0.20%, low: -0.26%).
  • The crypto market continues to trade weak with Bitcoin down -3.04% and Ether down -3.64%.
This is a partial analysis of what happened yesterday, for a more detailed analysis, subscribe to a membership plan.

Headlines & Market Impact

Fed says it’s not ready to cut rates until ‘greater confidence’ inflation is moving to 2% goal

Notable Snippet: Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates, minutes released Wednesday showed.

“Participants affirmed that additional favourable data were required to give them greater confidence that inflation was moving sustainably toward 2 percent,” the meeting summary said.

Though the minutes reflected disagreement from the 19 central bankers who took part in the discussion, with some even indicating a penchant toward raising rates if necessary, the meeting concluded with Federal Open Market Committee voters holding rates in place.

Meeting participants “emphasised that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee’s 2 percent objective.”

In discussions over how they would approach monetary policy, the minutes reflected some disagreements. Some members noted the need to tighten the reins should inflation persist, while others made the case that they should be ready to respond should the economy falter or the labour market weaken.

“Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised,” the minutes stated. “A number of participants remarked that monetary policy should stand ready to respond to unexpected economic weakness.”

The summary also noted a “vast majority” saw economic growth “gradually cooling” and that the current policy is “restrictive,” a key term as the officials contemplate how restrictive policy needs to be while bringing down inflation and not causing undue economic harm.

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China leading generative AI patents race, UN report says

Notable Snippet: Generative AI, which produces text, images, computer code and even music from existing information, is exploding with more than 50,000 patent applications filed in the past decade, according to the World Intellectual Property Organization (WIPO), which oversees a system for countries to share recognition of patents.

More than 38,000 GenAI inventions were filed by China between 2014-2023 versus 6,276 filed by the United States over the same period, WIPO said.

Harrison said the Chinese patent applications covered a broad area of sectors from autonomous driving to publishing to document management.

South Korea, Japan and India were ranked third, fourth and fifth respectively, with India growing at the fastest rate, the data showed.

Among the top applicants were China’s ByteDance – which owns video app TikTok – Chinese e-commerce giant Alibaba Group, and Microsoft, a backer of startup OpenAI which created ChatGPT.

While chatbots with the ability to mimic human discourse are already being widely used by retailers and others to improve customer service, GenAI has the potential to transform many other economic sectors like science, publishing, transportation or security, WIPO’s Harrison said.

“The patent data suggests this is an area that is going to have a profound impact across many different industrial sectors going forward,” said WIPO’s Harrison, highlighting the scientific sector where GenAI-created molecules have the potential to expedite drug development.

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Swiss National Bank open to expanding digital currency project

Notable Snippet: The Swiss National Bank is open to expanding its pilot project with wholesale central bank digital currencies, governing board member Antoine Martin said on Wednesday.

“We would like to see a pilot which develops, with more banks joining and a higher volume of transactions,” Martin told the Point Zero Forum event in Zurich.

The SNB will continue providing a wholesale central bank digital currency (CBDC) for at least two more years, it said last month, extending a pilot called Project Helvetia III which began last year.

Six banks, including UBS (UBSG.S) and Commerzbank (CBKG.DE) are already taking part in the project which has seen six digital bond issuances for a total value of 750 million Swiss francs ($830.38 million).

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord