Monday's Markets Update (August 5, 2024)

05 Aug 2024 by rate3

On Monday, stocks plunged at opening amid recession fears, despite a stronger-than-expected services sector report. Tech giants led the decline, with Nvidia, Apple, and Microsoft investors suffering heavily. Internationally, all major world markets are in the deep red, with Japanese stocks experiencing the worst one-day drop since 1987 as oil hit six-month lows and the dollar reached its seven-month bottoms. The yen and yuan grossly benefited, while the euro and rupee were undermined. BTC and ETH crashed, reaching 50K and 2K, respectively, as corporate traders panic-sold a broad range of risky assets, faced with the Fed's incompetence and geopolitical instability.

Details

Services sector unexpectedly rebounded in July, with new orders and business activity picking up. Employment also increased, contradicting recent weak job reports. However, rising prices across various services remain a concern. 1Y trend: "Down" (ISM)
Business activity grew in July, led by services, but at a slower pace than initially reported. Manufacturing expanded slightly, while new orders and exports dipped. Job growth continued, but cost pressures eased. Business confidence slipped, though future outlook remains positive. 1Y trend: "Up" (SP)

World Markets

Eurozone producer prices rose sharply (+0.5%) in June, ending seven months of decline. Energy costs surged, driving the overall increase. While yearly inflation remains negative, monthly price growth accelerated across most sectors. 1Y trend: "Side" (EC)
Eurozone economy slowed in July. Growth was weak, driven mainly by services, but manufacturing contracted sharply. Demand fell, employment stagnated, and business confidence hit a low point. Inflation edged up slightly. Eurozone service sector growth is down. New business orders weakened, especially domestically, while backlogs declined. This led to slower job creation and tempered business confidence. Input costs rose, but price increases were limited by softer demand. 1Y trend: "Side" (PPI)
Turkey's inflation rate dropped to 61.8% in July, down from 71.6% in June. This is the second consecutive slowdown, with prices falling across most categories. Food, transport, and clothing costs decreased significantly, while core inflation also eased. However, prices rose 3.23% compared to June. 1Y trend: "Up" (source)

Currencies

The dollar is falling sharply. This has increased expectations of interest rate cuts, especially after a disappointing jobs report. The market is now pricing in a significant rate cut for September. 1Y trend: "Up"
The Chinese yuan strengthened to almost its 1-years lows (7.13) due to a weaker dollar, driven by concerns over a US recession. This helped offset weak Chinese economic data showing manufacturing contraction and slower service growth. 1Y trend: "Side"
The Indian rupee hit a record low of 84 to the US dollar in August due to global economic uncertainty. Despite a recent US dollar decline and a conservative budget, the Reserve Bank of India is likely intervening to weaken the rupee and boost exports. This strategy aims to counterbalance the impact of a stronger rupee on Indian goods in international markets. 1Y trend: "Up"
The Euro is soaring to 1.09 against a weakening dollar as investors bet on Fed rate cuts. While the Eurozone faces inflation challenges, economic growth in Q2 exceeded expectations, led by France, Italy, and Spain. Germany, however, contracted. 1Y trend: "Up"

Commodities

Oil prices plummeted to a six-month low (72.94) due to recession fears. Despite Middle East tensions, weak US and Chinese economies, and rising unemployment are driving down oil demand, overshadowing geopolitical risks. 1Y trend: "Side"

Comment: Why Is It Inevitable?

The current generational cycle makes it impossible to avoid large-scale geopolitical conflict, only to make it less catastrophic. The leader of the initiating party is 71 years old. As large-scale conflicts last approximately 10 years, it must be initiated within the next 4 years;
Major, co-evolving points of tension will converge, leading to a systemic readjustment that, under the current over-centralized world governance paradigm, might only be nuclear (re: MAD, Thucydides Trap, Security Dilemma, Realist Theory);
The closest point of readjustment meets the major condition: all four involved parties seek a "fast resolution," while sharing a desire to escalate in order to preserve personalized powers and control over revenue centers;
One of the participating sides has already announced a minimum deployment yield of approximately 70 Ktn if its conditions are not met. However, this side has also addressed its target audience with a historical example – not one but two deployments in August 1945 – suggesting the yield of future deployment will be around 150-200 Ktn;
Estimates of the energy released by the explosion at the Chernobyl nuclear reactor in 1986 vary, but it is generally compared to approximately 0.3 kilotons of TNT (KTn). For reference, the yield of the bombs dropped on Hiroshima and Nagasaki was approximately 15 and 20 Ktn. Therefore, it is very unlikely that the future deployment will be on the ground; it will most probably be either in the air or under the water;
Consequently, the prime targets of these two deployments will be electronic communications (EMP), naval ships, or small coastal cities (unlikely);
The argument that this deployment is politically damaging for the initiator because it irrevocably damages its political support from key allies is void, as this deployment will be advertised as "horrible but historically precedented and absolutely necessary to prevent the upcoming World War III";
The argument that "the reply will be non-nuclear but also terrible" is void because the initiating party doesn't have any critical and vulnerable strategic objects outside its own territory. Additionally, politically, the initiating party has an extremely high population tolerance for catastrophic developments, much higher than that of all their adversaries;
Furthermore, the deployment will seal the current geopolitical scenario development trajectory towards confrontation, which is highly desirable to the initiator.