5 Things You Need to Know to Start Your Day: Americas

Good morning. A turbulent week reaches a close with debates on where next for stocks, bonds, central banks and the AI story. Here’s what’s m [View in browser]( [Bloomberg]( Good morning. A turbulent week reaches a close with debates on where next for stocks, bonds, central banks and the AI story. Here’s what’s moving markets. — [Sam Unsted]( Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Turbulent week Stocks are set to end a tumultuous week in a mildly positive fashion, with [US futures edging up and benchmarks in Europe gaining](. The S&P 500 rebounded on Thursday, notching up its biggest one-day gain since November 2022 and sitting very close to retracing all the declines suffered in Monday’s meltdown. Treasury yields are marginally lower and the dollar a touch weaker, while the yen resumed its rise. Stock and bond signals The surge in the VIX, Wall Street’s fear gauge, is [flashing a buy signal]( for stocks, according to UBS’s Solita Marcelli. She remains confident the upward trajectory for equities will continue. In bond markets, Pimco’s Daniel Ivascyn thinks there’s a [“bumpy, bumpy road”]( ahead, but is ready to start adding Treasuries again as yields grind higher. However, the investor behind a [$2.7 billion bet]( on long-dated Treasuries thinks that his recession call is coming to fruition. Fed not ready Federal Reserve officials are pushing back on the ramp-up in bets on imminent rate cuts. Jeffrey Schmid indicated he was [not ready to support a cut]( given inflation remains above target and the labor market, despite some cooling, remains healthy. Tom Barkin said the [Fed has time to assess]( if the economy is normalizing or softening in a way that would require action. A large majority of economists, meanwhile, think that a jumbo cut at the Fed’s September meeting is [extremely unlikely](. Faith in the BOJ Traders in Japan, one of the main areas of market turbulence this week, are puzzling on [how much faith to put in comments from the Bank of Japan]( highlighting the difficulty the BOJ will face in limiting shocks as it unwinds years of extraordinary stimulus. The [unwinding of the yen-funded carry trade]( another major contributor to the volatility this week, has more room to run, JPMorgan is gaming the scenario that the [BOJ is done with hikes]( this year and strategists are getting [more pessimistic on Japanese stocks](. AI debate Another focal point of the wild week is the AI story, and traders are now [mapping out what the next catalyst]( will be for the story, with money managers hunting where to buy the dip. JPMorgan Asset Management said it was [“becoming more selective” on tech and AI]( and that there is still “some adjustment to come.” Amid that debate, Taiwanese chipmaking giant TSMC posted a [45% revenue bounce in July]( benefiting from sustained demand for AI products. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - Chinese [inflation picks up]( but demand concerns persist. - The pound’s rally has [fizzled out](. - The [economic realities]( of swing states. - [Wall Street bonuses]( may be about to make a comeback. - A toymaker [bets big]( on gaming. And finally, here's what Justina’s interested in this morning What's a word for something between fear and panic? This is what this week has felt like. Many longstanding winning trades — most notably the yen carry trade — unwound, but at least outside Japan, nothing went haywire. At this point the S&P 500 and Nasdaq have a real shot of erasing their weekly losses by the end of today. And consider: - [Defensive strategies]( generally worked through the stock selloff. Treasuries rallied, taking their 60-day correlation with the S&P 500 close to the negative territory, which indicates the two assets are hedging each other again. Among equity factors, your classic risk-off ones like low volatility and quality also gained. When your hedges work, there's less pressure to offload everything. - Both Goldman Sachs prime brokerage and JPMorgan data show institutional investors [bought]( the dip on Monday. - The [volatility spike]( was bad for anyone shorting it (duh), but it was nothing like a volmageddon. [Equity dispersion]( (this year's breakout star, which goes long single-stock vol and short index vol) dropped 0.8% last Friday and another 0.9% on Monday, according to LumRisk's index aggregating bank swap products. Correlation spiked and came back down. It's higher than before this rout but still near historic lows. Equity vol carry fell 0.7% last Friday and another 1.2% on Monday. So short vol got hit but not killed. Relatedly, there's been some commentary on how the record spike of the VIX to 65 on Monday might not mean much because it happened when options trading was highly illiquid before the US open. So it's true that the yen surge hit some of these trades, AI hype deflated a bit and the US economy is slowing. But the idea that a sharp US economic slowdown was going to force an emergency Fed rate cut now feels a bit like a strawman. Justina Lee is a cross-asset reporter based in London.  Follow her on X [@Justinaknope](. [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Stay updated by saving our new email address Our email address is changing, which means you’ll be receiving this newsletter from noreply@news.bloomberg.com. 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