Weekly Letter (8/3 - 8/7)
Executive Summary:
The primary drivers for the markets this week include the US Treasury’s intervention in the Yen, the abysmal jobs report from the Bureau of Labor Statistics, geopolitics in the Middle East, and positive AI/Tech sentiment around spending after strong Q2 results across the board. After the Yen hit a multi year low the Japanese central bank and NY Fed intervened to boost the currency that would help trade between the two countries. The BLS reported that the US economy lost 23k jobs against the expected addition of 80K jobs. Oman and Iran are in the final stages of reaching an agreement over shipping routes. AI/Tech earnings are showing that demand is generating real revenue for these companies who have recently been under lots of scrutiny over returns.
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Equities:
WoW Performance: S&P 500 +3.58% | Nasdaq +5.33% | Dow +2.97%
Stocks had a positive week driven by a weaker than expected July jobs report that essentially changed the outlook for the September rate decision by the Fed, reducing the expectations of a rate hike which investors played into. Sentiment also improved over an Iran and Oman shipping route agreement that helped to ease oil supply concerns that have weighed heavily on oil supply and inflation, although this deal will not restore normal traffic through the Strait. Equity gains this week were also built off of positive AI/Tech spending sentiment that built off of the strong Q2 earnings from Microsoft and Amazon as Palantir also reported strong earnings this week helping to ease concern over the returns on high spending, indicating that the demand is translating into revenue.
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Fixed Income:
WoW Yields: 2 Year -6bps | 10 Year -7bps | 30 Year -6.5bps | 2s10s Spread +1bps
Yields had a choppy week in response to US and Japanese intervention in the Yen and the July jobs report. Yields started the week off higher as investors worried Japan would be forced to sell off US treasuries to boost their own currency from multi year lows. However, Japan used treasuries as collateral for US dollars and the Fed used Euros to boost the Yen taking pressure off of treasuries. Yields came down later in the week however in response to the poor jobs report where investors looked to lock in a higher rate of return in anticipation for September where the odds of a rate hike are off the table following the BLS report.
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Commodities:
WoW Performance: Oil -8.55% | Spot Gold +7.47%
Oil fell sharply this week off of optimism over new deals in the Middle East that would help to increase the flow of oil and the supply to global markets as Iran and Oman reached a deal over shipping routes. Gold jumped this week in response to the jobs report as a hike is off the table meaning gold has become more attractive to investors as lower interest rates lower the opportunity cost of holding gold.
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Currency
WoW Performance: DXY -0.2%
The dollar remained relatively flat throughout this week but responded to the July jobs report on Friday from the BLS. DXY fell as investment into dollar denominated assets became less attractive without an anticipated rate hike for the Fed’s September meeting.
