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This week we bring you a selection of the most notable events: The Japanese stock market saw its biggest drop in eight years after a surprise interest rate decision. Gold hit all-time highs, driven by several factors. JP Morgan makes a striking prediction about the future of silver price. Finally, the latest economic data from the US points to an economic cooling.
The Japanese stock market has experienced a massive drop in the past few days. The Nikkei 225 index fell 5.81% today to 35,909.7 points, its biggest drop since March 2020. This is a significant difference compared to less than a month ago, when the Nikkei reached a record of 42,224.02 on July 11. The broader Topix index also fell by as much as 6.14%, the biggest drop in eight years. The Bank of Japan's (BoJ) interest rate decision appears to be the most important factor.
Nikkei 225 Index (source: CNBC)
In a article Last month, we briefly wrote that the Japanese central bank is taking a different course than the central banks in the West. The BoJ has set its base rate Increased to 0.25 percent and has announced plans to halve its monthly bond purchases and thereby tighten monetary policy. This is Japan's highest level since the 2008 financial crisis after years of negative interest rates. This opposing rate of the BoJ strengthens the yen against the dollar by narrowing interest rate differentials with other major economies. At the time of writing, you'll pay over ¥148 for a dollar, up from ¥160 earlier this month.
Many of the hardest-hit stocks, therefore, were also automakers and other producers whose profits were previously boosted by the yen's weakness. Japanese real estate stocks were also hit hard by the BoJ's decision, with Mitsui Fudosan and Mitsubishi Estate down about 8 percent. Many investors don't believe the Japanese economy can handle a 25 or 50 basis point hike, nor do they think Japanese companies can make a profit with a yen below 150.
USD/JPY (source: CNBC)
The Japanese stock market was the Best Performers stock market in Asia this year, except for the Taiwanese one. Goldman Sachs indicates that there is a fundamental shift taking place in the market, but also that they do not expect the rally to be completely over. The rally over the past two years, according to the chief strategist on Japanese equities, has been driven by three factors: the weakness of the yen that benefited 'blue-chipexporters and banks, expectations of monetary policy normalization, and corporate governance reforms. He sees that investors are now increasingly interested in Japanese small and medium-sized companies due to their greater exposure to domestic demand and lower vulnerability to exchange rate fluctuations.
The Gold price Reached Record highs of well over €73,000. In dollars, the price was close to the magic mark of $2,500 per ounce. An important factor in the rise in the price of gold, in addition to the geopolitical tensions, is the expectation that the Fed will cut interest rates. We wrote one back in July article about. According to Analysts WisdomTree's gold may be somewhat overvalued in the (very) short term and its price may fall. In the longer term, the outlook remains positive. They predict that the price of gold could even rise to $2,970 per ounce if inflation remains high while the Fed cuts interest rates.
In the 'Gold Demand Trends Q2 2024' we read another explanation for the rise in the price of gold. Total demand for gold reached an all-time high last quarter. Central banks' gold purchases were 6% higher and, according to this report, industrial demand for gold also increased.
China's central bank is also likely still buying gold. Earlier, they communicated that they had stopped. The purchases may not have been reported to influence the market and depress the price of gold. Reading tip: the full article by Jan Nieuwenhuis on this subject.
Record demand for gold (source: World Gold Council)
$36, which is the amount you expect to JP Morgan by 2025 for an ounce of silver. At the time of writing, that's more than $10 more than the current one Silver price. They give four reasons for the increase:
JP Morgan is now advising investors to consider increasing their silver allocation to take advantage of the predicted increase. This is a remarkable prediction because of the reputation of the bank and the past of the Price manipulation on the precious metals market.
The ISM Manufacturing Purchasing Managers' Index (PMI) by July 2024 Dropped to 46.8, compared to 48.5 in June. This while analysts had expected a slight increase to 48.8. A PMI reading below 50 indicates a decline in manufacturing activity. Thus, this surprising figure indicates that manufacturing activity in the U.S. is contracting faster than expected.
The employment component of the PMI, the Employment Index, even fell to 43.4. In June, this figure was 49.3, and it was only three times before so low. This points to a sharp decline in employment in the U.S. manufacturing sector. This corresponds to the Disappointing employment figures and Growing unemployment in the U.S. All figures point to a Cooling labour market, which coincides with falling inflation. This gives the Fed the leeway to Interest rate cuts to implement.
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On behalf of Holland Gold, Paul Buitink interviews various economists and experts in the macroeconomic field. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
