When will it stop? 

Thoughts of the Day

The Japanese yen continues to weaken relentlessly. USDJPY is now trading at 161.60, a level that was last seen in the 1980s. Yet, the Japanese authorities which were strongly intervening to sell USD in April when USDJPY traded above 160 are strangely absent.

How far can this go? It’s likely to continue weakening unless the Bank of Japan starts hiking interest rates or the Ministry of Finance sells USD and buys JPY aggressively again. Barring that, the relentless weakening will continue in the days ahead.

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Chewy executives alarmed at ‘Roaring Kitty’ stake in pet-product retailer

Stock influencer Keith Gill, known as “Roaring Kitty,” unveiled a 6.6% stake in Chewy (CHWY) on Monday, a surprise move that alarmed executives at the U.S. pet products company. The stock opened +9.25% higher on Monday at 29.77 due to the news but closed lower at 25.43 (-14.6%).

The Chewy stake is Gill’s first known investment beyond GameStop. A link connects these two investments: Ryan Cohen, the billionaire founder of Chewy, is now CEO of GameStop. Gill has in the past praised Cohen in his social media posts. Cohen founded Chewy and sold it in 2017.

With the euphoria over Gamestop gone, is it time for another stock to take over its place as a memestock? Only time will tell but remember, do not fight the irrational move.

Day Ahead

  • [Euro Area Inflation] Headline Consumer Price Index: +2.5% expected vs +2.6% previous, core CPI: +2.8% expected vs +2.9% prev.
  • [Euro Area Unemployment] +6.4% expected and prev
  • [US Labour] JOLTS job openings: 7.85 million expected vs 8.059 million prev 
  • ECB President Lagarde and Federal Reserve Chairman Powell are due to participate in a panel discussion titled “Policy panel” at the ECB Forum on Central Banking, in Sintra.
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What Happened Yesterday

Market Movements as of New York Close 1 Jul 24
  • RBA Meeting Minutes: The central bank highlighted the need to remain vigilant to the upside risks of inflation, as data suggested potential increases in May’s CPI. Economic uncertainty made future policy changes difficult to predict. Recent data did not alter the expectation that inflation would return to target by 2026. The board believed it was still possible to control inflation while maintaining employment gains, despite seeing downside risks in the labour market and an increase in business insolvencies, which could negatively impact jobs. They also noted that Q1 GDP growth was weak and wage growth seemed to have peaked. If current policies were deemed insufficiently restrictive, a rate hike might be needed. The August forecast would allow for a careful assessment of the economy’s spare capacity, which remained highly uncertain. While inflation expectations were still anchored, a significant rise could necessitate higher rates. Reaction in the AUDUSD was muted.
  • The US stock market opened higher from Friday. It then actively traded within a range through the New York session. The S&P 500 close +0.27% higher on the day (high: +0.35%, low: -0.26%), the Dow Jones rose +0.13% (high: +0.82%, low: -0.21%) while the Nasdaq increased +0.66% (high: +0.74%, low: -0.54%). The rise in the Nasdaq was led by an increase in tech stocks (AAPL: +2.91%, MSFT: +2.19%, AMZN: +2.04%).
  • The crypto market traded slightly higher on the day with Bitcoin up +0.25% and Ether up +0.15%.

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Headlines & Market Impact

ECB not in a hurry to cut rates further, Lagarde says

Notable Snippet:  The ECB lowered rates for the first time in June after its most aggressive rate hike spree on record, but held back on committing to any subsequent moves, arguing that the outlook was far too uncertain to telegraph a second cut.

“It will take time for us to gather sufficient data to be certain that the risks of above-target inflation have passed,” Lagarde told the ECB Forum on Central Banking, the bank’s hallmark policy conference.

“The strong labour market means that we can take time to gather new information,” she added.

The ECB is trying to walk a narrow path, reconciling inflation uncertainty and weak growth. Uncertainty would warrant caution in cutting rates, but persistent economic weakness strengthens the case for easing, tugging the ECB in opposing directions.

Lagarde acknowledged this dilemma, warning that it was still not a given that the bloc would avoid a recession, despite a modest growth uptick last quarter.

“A ‘soft landing’ is still not guaranteed,” she said. “We also need to be mindful of the fact that the growth outlook remains uncertain.”

“We are still facing several uncertainties regarding future inflation, especially in terms of how the nexus of profits, wages and productivity will evolve and whether the economy will be hit by new supply-side shocks,” Lagarde said.

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US manufacturing extends slump; inflation pressures ebbing

Notable Snippet:  U.S. manufacturing contracted for a third straight month in June as demand remained subdued, while a drop in a measure of prices paid by factories for inputs to a six-month low suggested that inflation could continue to subside.

The weakness at the end of the second quarter reported by the Institute for Supply Management on Monday was across the board, with ISM Manufacturing Business Survey Committee Chair Timothy Fiore describing manufacturers as demonstrating “an unwillingness to invest in capital and inventory due to current monetary policy and other conditions.”

Manufacturing is being pressured by higher interest rates and softening demand for goods, though business investment has largely held up.

“We expect the manufacturing sector to remain weak over the next couple of quarters,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. “The retreat in corporate bond yields since late last year … seems to have provided some support to investment spending, but not enough to get manufacturing growing again. A much more significant loosening in financial conditions is required to change that.”

The ISM’s manufacturing PMI slipped to 48.5 last month from 48.7 in May. A PMI reading above 50 indicates growth in the manufacturing sector, which accounts for 10.3% of the economy. The PMI remains above the 42.5 level, which the ISM says over a period of time indicates an expansion of the overall economy.

Economists polled by Reuters had forecast the PMI climbing to 49.1. It has indicated contraction in manufacturing in 19 of the last 20 months. Sixty-two percent of manufacturing gross domestic product contracted, up from 55% in May.

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Citadel’s Ken Griffin says he’s not convinced that AI will replace human jobs in the near future

Notable Snippet: “We are at what is widely viewed as a real inflection point in the evolution of technology, with the rise of large language models. Some are convinced that within three years almost everything we do as humans will be done in one form or another by LLMs and other AI tools,” Griffin said Friday during an event for Citadel’s new class of interns in New York. “For a number of reasons, I am not convinced that these models will achieve that type of breakthrough in the near future.”

The rapid rise of AI has had the world pondering its far-reaching impact on society, including technology-induced job cuts. Elon Musk, CEO of Tesla, is among many who have repeatedly warned of the threats that AI poses to humanity. He has called AI “more dangerous” than nuclear weapons, saying there will come a point where “no job is needed.”

Griffin, whose hedge fund and electronic market maker have been at the forefront of automation, said machine-learning tools do have their limits when it comes to adapting to changes.

“Machine learning models do not do well in a world where regimes shift. Self-driving cars don’t work very well in the North due to snow. When the terrain changes, they have no idea what to do,” Griffin said. “Machine learning models do much better when there’s consistency.”

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Phan Vee Leung
CIO & Founder, TrackRecord