【MACRO Aler】NVIDIA and computing power assets fluctuate, employment and housing are said to be weak! Yet Yellen remains optimistic about the US economy?

Over the past period of time, the computing power assets market has experienced significant fluctuations. Nvidia's stock price plummeted by more than 6% overnight, falling more than 16% from its historical peak. At the same time, Nvidia's partner Supermicro (SMCI-US) also suffered a significant downturn of 8.65%, marking the largest single-day drop since early May. Other related companies such as Dell (DELL-US) and Taiwan Semiconductor ADR (TSM-US) also saw declines of over 5% and 3.5%, respectively.

NVIDIA's stock price, despite recent rebounds, remains approximately 100% above its 200-day moving average. Market analyst Jonathan Krinsky pointed out that since 1990, the greatest extent to which U.S. companies' stock prices have exceeded the 200-day moving average when reaching global market cap highs is 80%, a record set by Cisco in March 2000.

In addition, according to information disclosed by the U.S. Securities and Exchange Commission, NVIDIA CEO Jensen Huang sold 120,000 shares of company stock on June 21 and reduced holdings by a cumulative 720,000 shares in the seven trading days following June 13, totaling nearly $95 million in cashed-out proceeds. Due to fluctuations in NVIDIA's stock price, computing power assets in the Asia-Pacific market also experienced widespread declines. For example, shares of Samsung Electronics fell by nearly 5%, SoftBank Group and SK Hynix saw drops of over 2%, and Tokyo Electronics fell by nearly 2%.

The cryptocurrency market closely associated with computing power assets also suffered severe losses. Bitcoin prices briefly dropped more than 7%, falling below the $60,000 mark. Although the decline narrowed thereafter, the overall drop remained significant. Over the past 24 hours, more than 89,000 people in the cryptocurrency market experienced liquidation.

Analysts attribute the continued declines in NVIDIA and the Nasdaq index to a series of actions by the Federal Reserve. On June 24, the Fed accepted $435.916 billion from 71 counterparties in its fixed-rate reverse repurchase operations, an increase of $100 billion from June 17, indicating the Fed's efforts to withdraw liquidity from the market. Historical data shows that after peaking on December 29, 2022, reverse repurchase operations began to decline, and during the U.S. banking crisis among small and medium-sized banks in 2023, the Fed intensified its operations, releasing significant liquidity and establishing a downward trend in May.

Meanwhile, the Federal Reserve also took another step that led to a rally in U.S. bank stocks. According to a Bloomberg report, the Fed has submitted a document to other regulators outlining possible modifications to bank capital reforms that will ease the burden on Wall Street banks. Sources close to the matter have revealed that the new bill, after amendments, could repeal some key clauses, particularly for large banks with massive trading operations. Analysts believe that this policy easing is a victory for Wall Street banks, which have been engaged in intense lobbying efforts since the proposal was announced in July last year.

Furthermore, due to the softness in employment and housing market data, economist Steven Blitz has suggested that the Federal Reserve may unexpectedly implement a rate cut in July, although the market widely anticipates the first cut to occur in September or November. Blitz believes that if June's employment data comes closer to April's level and the overall trend also shows weakness, the Fed may adopt a more dovish stance in its policy communications in July. Employment growth in April was lower than expected, although it rebounded in May, recent jobless claims data does not look promising. At the same time, the housing market is also showing signs of slowing down, with housing construction activity decreasing in May, inventory increasing, and a decline in new home traffic, which may signal the risk of an economic recession.

The Fed needs to pay attention to these signs because maintaining a tight financial environment for too long may trigger a recession. Although some hawkish officials like Kashkari believe the Fed may not cut rates until December, Blitz argues that, based on current data, the likelihood of a rate cut in July is as high as 60%, because an economic recession is an unacceptable option. He emphasized that the Fed's decisions should be based on data rather than a predetermined schedule.

In this context, US Treasury Secretary Yellen holds an optimistic view on the American economy, believing it will not enter a recession. She anticipates inflation to decline to the Federal Reserve's target of 2% over the next year. Yellen emphasizes the critical role of reducing housing costs in achieving this goal, expressing confidence in stable rental prices and future cost reductions. She announced a $100 million fund initiative to support financing for affordable housing. Despite record-high home prices in May, Yellen does not see a quick solution to housing affordability but pledges to utilize all available tools to address the issue.

Regarding Federal Reserve interest rate cuts, Yellen did not specify a timeline but stressed decisions will be data-driven. She criticized the tax cuts during the Trump administration, arguing they increased deficits without generating expected investment enthusiasm, and acknowledged responsibility for current fiscal challenges. Yellen mentioned President Biden's budget proposal aims to reduce the deficit by $3 trillion over the next decade to maintain debt-to-GDP ratios. She maintains a positive outlook on the sustainable development of US finances, noting that even in a high-interest-rate environment, interest payments on national debt remain historically manageable.