CNBC Daily Open: Wall Street’s ‘dress rehearsal’

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Best week
Wall Street had its best week of 2024, recovering from a rout earlier this month. For the week, the S&P 500 surged nearly 3.9%, bringing it within striking distance of its July record high. The tech-heavy Nasdaq Composite saw an even more impressive 5.2% gain, while the Dow Jones Industrial Average advanced a solid 2.9%. Meanwhile, the yield on the 10-year Treasury fell as data eased concerns of an imminent recession.

Oil sinks
U.S. oil prices dropped 2% following reports that Qatar told Iran not to attack Israel amid ongoing Israel-Hamas cease-fire talks. Qatar’s prime minister warned Iranian leaders of the potential consequences of striking Israel when progress is being made, the Washington Post reported, citing diplomats. Talks are expected to resume this week after negotiations were paused on Friday. Hamas did not take part in talks but was briefed by mediators. U.S. Secretary of State Antony Blinken arrived in Israel on Sunday, as efforts intensify to end the 10-month-old war between Israel and Hamas.

Blocked
A U.S. judge has temporarily blocked the launch of Venu, a sports streaming service from Disney, Warner Bros. Discovery and Fox. Fubo TV, a competitor, filed an antitrust lawsuit, alleging Venu would harm competition. “Today’s ruling is a victory not only for Fubo but also for consumers. This decision will help ensure that consumers have access to a more competitive marketplace with multiple sports streaming options,” Fubo CEO David Gandler said after the injunction. Fubo’s stock surged 16% after the ruling. 

Mpox approval 
Shares of Bavarian Nordic surged 14.8% after the Danish biotech firm submitted data to the European Union’s drug regulator to extend its mpox vaccine approval for 12 to 17-year-olds. CEO Paul Chaplin said the move is key in combating the new clade 1b strain, which primarily affects younger people. “More than 70% of the cases in Africa currently are in people younger than 18, so it’s going to be critical that our vaccine can be used in this younger age group,” Chaplin told CNBC. The submission comes after the World Health Organization declared the mpox outbreak in Africa as a public health emergency. 

Asia markets mixed
After a broad rally last week, markets in the Asia-Pacific region were mixed as investors awaited economic data and central bank interest rate decisions. Japan’s Nikkei 225 snapped a five-day winning streak, sliding 1.7% after core machinery orders fell surprisingly short of expectations. South Korea’s Kospi dipped 0.85%, while Australia’s S&P/ASX 200 nudged up 0.12%. Hong Kong’s Hang Seng index rose 0.93% as JD.com soared 4.4% after posting stronger-than-expected quarterly earnings. Mainland China’s CSI 300 climbed 0.4%.

[PRO] Bond market rally
China’s central bank aims to curb its bond market rally, sparking concerns about financial stability. Analysts predict a slight increase in 10-year bond yields. Here’s how markets are betting it will turn out.

For anyone waking up in a cold sweat, rest assured — it wasn’t just a bad dream. Global markets did experience a sharp sell-off, with Japan’s Nikkei 225 plunging 12.4% and unwinding of the yen carry trade dragging Wall Street down with it. However, markets have since rebounded, reassured by signals that Japan’s central bank will not raise rates in such a volatile environment and that the U.S. economy isn’t on the verge of a recession. 

But JPMorgan sees the recent turmoil as more than just a market anomaly. “Many market participants are dismissing the recent blowup of various crowded trades as a fluke or flash cash, but we see it as more of a dress rehearsal for what’s to come,” JPMorgan strategists said in a note.

The financial giant believes that while the risks associated with the carry trade could resurface, the heavy losses investors suffered may temper its future impact, potentially preventing a full-blown market meltdown. Nevertheless, JPMorgan cautions that concerns about economic growth remain a significant threat.

“Looking ahead, until the Sharpe ratios on the carry trades get high, we would not think these would be the catalyst for the next major correction,” the firm said. “Instead, we see the reemergence growth risk as the likely trigger.”

Last week’s U.S. inflation, retail sales and jobs data may have provided some short-term reassurance, but investors are now turning their attention to Federal Reserve Chair Jerome Powell’s upcoming speech in Jackson Hole, Wyoming. Wall Street is eagerly awaiting Powell’s outlook on inflation and the broader economy, as it could signal the direction of interest rate policy — particularly ahead of a possible September rate cut.

Market expectations for a large rate cut in September have diminished. According to the CME FedWatch Tool, investors are still pricing in at least four rate cuts by the end of the year. 

However, Goldman Sachs argues that this level of pessimism may be overblown. “The market is still pricing more cuts than our base case for 2024,” which includes a 25-basis-point cut at each of the next three meetings and beyond, Goldman noted. “Another weak jobs report would put a 50-basis-point cut in September on the table, but we think the markets has been over-weighting that probability.” 

CNBC’s Jeff Cox examines how this past week’s economic data could influence the Federal Reserve’s next move.

— CNBC’s Yun Li, Jesse Pound, Spencer Kimball, Brian Evans, Alex Harring, Jeff Cox, Lillian Rizzo, Karen Gilchrist, Sean Conlon, Lim Hui Jie and Weizhen Tan contributed to this report.