T3 Monthly Insights - Jul 2024

U.S. equities reached new record highs early in July, but a sharp sell-off in semiconductor stocks mid-month sparked a broader market downturn, resulting in notable losses for both the Nasdaq and S&P 500. The rotation out of large-cap tech stocks, particularly the MAG7, intensified, leading to the Nasdaq’s worst single-day drop in nearly two years. On economic front, the June inflation report offered some relief, with core CPI rising by just 0.1% from May, bringing the annual rate of inflation down from 3.3% to a three-year low of 3.0%. This encouraging inflation data heightened market expectations for a potential Federal Reserve rate cut as early as September. Amid the broader market decline, the Dollar Index fell to levels last seen in March before finding support around the 104 level, closing the month down 1.67% m/m.

In Japan, the Bank of Japan intervened as the yen depreciated past 161.0, reaching a 38-year low. The intervention, coupled with a weaker-than-expected U.S. inflation print, led to a sharp 6.78% rally in the yen, reversing losses from Q2. USDJPY ended the month at 149.98.

The Euro and Pound both strengthened against the weakened dollar, closing at 1.0826 (+1.05% m/m) and 1.2856 (+1.67% m/m), respectively. The European Central Bank (ECB) kept its benchmark interest rate steady at 4.25% as anticipated. ECB President Christine Lagarde refrained from committing to a specific rate path, emphasizing that future decisions will depend on incoming data. Markets are now anticipating two additional rate cuts later in the year, likely in September and December. In the UK, the economy grew by 0.4% in May, doubling expectations, while inflation remained sticky at 2.0%. On August 1st, the Bank of England cut interest rates for the first time since the pandemic, reducing them by 25bps to 5.00%, down from a 16-year high.

Continuing from June, the Bank of Canada reduced its overnight interest rate by another 25bps to 4.50% in July, driven by expectations of continued inflation decline. Two more rate cuts are anticipated in October and December. USDCAD saw a sustained rally, reaching its highest level of 2024 and closing the month at 1.3808, up 0.94% m/m.

Market jitters in July prompted a flight to safety, pushing gold to a new all-time high of $2,485. Gold rallied 5.19% over the month, closing at $2,447.60. Bitcoin also saw a significant rally, touching $70,000 before experiencing a sharp sell-off in the first week of August.