Weekly house view | Situational (mis) awareness
The week in review
Situational Awareness, an artificial intelligence (AI)-focused hedge fund, sold the bulk of its public stock to rival Citadel after being hit by heavy losses as AI momentum in markets unwound. The forced sale was triggered by a combination of leverage and high volatility. The week also saw the widest return dispersion for big tech stocks in a single day since the 202o Covid-19 pandemic. Amazon surged on the monetisation of its AI investments, while Apple fell on challenging smartphone demand.
The S&P 5001 rose 1.1% over the week.
On the policy front, the US Federal Reserve kept interest rates on hold, but not without dissent from three officials who have expressed concern about inflation and wanted to hike. Longer-end Treasury rates moved higher, with the 30-year yield hitting its highest since 2007 as real rates moved higher. The Bank of Japan and the Bank of England held rates steady.
The Swiss National Bank expects to keep rates at zero until the end of 2027. A rare joint currency intervention by Japan, the US and South Korea pushed the yen from near 40-year lows of around 164 per dollar towards 157, underlining their resolve to prevent a selloff in the Japanese currency from causing global spillovers.
Japan’s prime minister unveiled a plan to temporarily reduce the consumption tax on food to ease price pressures on households, which are facing rising living costs partly due to the weak yen. US President Donald Trump called off joint strikes with Israel on Iran’s infrastructure as a peace deal appeared to move closer.
Quote of the week
"The United States should have the lowest interest rates in the world,” Trump said two days before the Fed voted.
Key data
US GDP slowed to an annualised rate of 1.5% in the second quarter from 2.1% in the first quarter. The University of Michigan's consumer sentiment index rose to 55.2 in July, reaching its highest level since February. However, gasoline prices remain sticky and elevated above USD 4 per gallon.
Germany’s Ifo survey of business morale rose more than expected in July.
Euro area inflation rose to 2.9% in July from 2.8% in June.
