T3 Monthly Insights - Aug 2024

August began with intense market volatility, as the VIX spiked past 65 and equities plunged to lows not seen since May. A major sell-off, now labeled as the new "Black Monday" in Japan, was triggered by the Bank of Japan rate hike and weak U.S. jobs data. The divergence between the BOJ and Federal Reserve sparked a sharp appreciation in the yen, causing a mass unwinding of carry trades. Initial jobless claims surged to 249K, the largest increase since August last year, amplifying recession fears. Compounding the uncertainty, the July jobs report missed expectations, with the unemployment rate climbing to 4.3%, its highest level since October 2021. The volatility sent shockwaves through global markets, with stocks tumbling worldwide. The Nasdaq dropped more than 10% from its all-time high, while Japan's Nikkei 225 plunged 12.4% before stabilizing at October’s low.

By mid-month, however, investor sentiment improved dramatically, reversing earlier losses. The S&P 500 finished August with a 2.28% gain, closing at 5,648.4, just shy of its July peak. Bond yields declined sharply, and the U.S. dollar weakened for a second consecutive month as expectations for Federal Reserve rate cuts firmed. The DXY index fell 2.3% m/m to 101.70. Meanwhile the Yen appreciated 2.54% to 146.17.

Against the weaker U.S. dollar, the Euro climbed 2.05% to 1.1048, touching a yearly high, while the Pound rose 2.11% to 1.3127, a level last seen in March 2022. Commodity-linked currencies saw even sharper gains, with the Aussie rising 3.41% to 0.6765 and the Kiwi surging 5.01% to 0.6249, both reaching yearly highs. The Reserve Bank of Australia left its cash rate unchanged at 4.35% for the sixth consecutive meeting, in line with expectations, as inflation remained stubborn, with no rate cut expected until 2025. Meanwhile, the Reserve Bank of New Zealand cut its interest rate by 25bps to 5.25%, marking the first reduction after maintaining a decades-high rate of 5.50% since May 2023. The RBNZ noted that consumer price inflation is returning to its target range of 1% to 3%.

Gold initially fell amid the broader market sell-off but finished the month strongly, gaining 2.28% and reaching a new record high of $2,503.39.