A Mixed Bag in the Markets: Stocks, Currencies, and Investor Sentiment

Nvidia’s recent earnings report didn’t exactly disappoint, but it also didn’t live up to the sky-high hopes of investors. As a result, the company’s stock took an 8% hit in after-hours trading. This has added to a somewhat uneasy mood in the market, with Asian stocks experiencing slight declines. The S&P 500 also closed by 0.6%, reflecting a more cautious atmosphere among investors. Now, everyone’s eyes are on the upcoming Federal Open Market Committee (FOMC) meeting on September 18th, which could be crucial in determining whether the Federal Reserve decides on a 25 or 50 basis points rate cut, simple, a 25bp is welcoming but not a 50bp.

At the same time, the US dollar has shown a bit of weakness in early trading, although the general risk-averse vibe in global markets hasn’t drastically shifted currency movements. Currencies like the New Zealand dollar, which tend to perform well in riskier environments, are holding strong, with the New Zealand dollar leading the charge. This follows a New Zealand business confidence survey that hit its highest level in a decade. What’s notable is that the optimism in the survey persisted even after the Reserve Bank of New Zealand (RBNZ) decided to cut rates, suggesting that the economy might be in better shape than previously feared. Earlier, there were concerns that the NZD could struggle if the RBNZ tightened too much, but this latest data paints a more positive picture for the currency’s future.

NZDUSD H4 Chart 

 Source: Finlogix Charts One reason the US dollar is softening is the slight dip in short-term yields. The yield on the 2-year US Treasury note has continued to decline, hitting its lowest point since April of last year, largely due to the recent downturn in the stock market. After Fed Chair Jerome Powell’s speech in Jackson Hole, Atlanta Fed President Raphael Bostic hinted at a cautious stance regarding a rate cut in September, stressing the need for more data to avoid making a move that could lead to more rate hikes down the line. His comments underscore how pivotal the upcoming jobs report will be in determining the Fed’s next steps.

In Japan, the weakening US dollar has sparked a surge in demand for foreign bonds and stocks. Last week alone, Japanese investors bought ¥899 billion worth of foreign equities, and over the past four weeks, they’ve snapped up a total of ¥2,217 billion—the most since January 2023. Even more remarkable is the rush to buy foreign bonds, with a four-week total of ¥5,613 billion, setting a record since the Ministry of Finance started tracking this data in 2001. This buying spree seems to be driven by a sharp drop in USD/JPY and a renewed appetite for risk, bolstered by a generally favourable global inflation outlook. With the limited rebound in USD/JPY during these record outflows, it’s likely that Japanese banks with dollars to spare have been major buyers, while others in the market continue to heavily sell USD/JPY.

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