In just a couple of days, expectations on the part of investment agents changed dramatically, generating a downward spiral in global stock markets that led, for example, to a masterful fall of -12.4% in the Japanese Nikkei index this morning, its largest drop since Black Monday in 1987. 

The five factors that have generated this turnaround are: 

1. Last Friday's U.S. employment data triggered a warning that there may be a sharper-than-expected economic landing entering the final stretch of the year. 

2. Central banks in the United States, Japan and the United Kingdom misaligned their messages on inflation in just a couple of hours with the Federal Reserve (Fed) announcing a possible interest rate cut in September, the Bank of England lowering its policy rate and the Japanese authorities raising their policy rate clouding the direction of monetary policy in developed countries.

3. The profits of technology companies with the development of artificial intelligence came into question with Intel, the microprocessor manufacturer, announcing not only massive job cuts but eliminating its dividend altogether.

4. Meanwhile, Berkshire Hathaway opted to massively reduce its equity exposure during the second quarter of the year, adding net sales in the order of US$75 billion and accumulating liquidity in the order of US$277 billion by selling almost half of its investment in Apple, no small message about the direction of the technology sector.

5. A considerable increase in global geopolitical risk that was accompanied by the U.S.-Russia prisoner exchange and an escalation of warfare in the Middle East that could lead to a war between Iran and Israel that could engulf the entire region as the U.S. moves warships into the region.

This week everything will revolve around the macroeconomic and monetary discussion of the developed countries whose next intervention will be at the economic symposium in Jackson Hole, Wyoming between August 22 and 24, where the topic is: "Reassessing the Effectiveness and Transmission of Monetary Policy". Unless the global stock market imbalance is of such magnitude that the central banks of the developed countries will have to come out to instill calm by announcing the implementation of liquidity programs in a coordinated manner. It is worth mentioning that the Nasdaq stock index has already accumulated a -10% mismatch after reaching its historical maximum on July 10. 

Meanwhile, as of this morning, the US sovereign rate is at 3.73% with the price of oil, as measured by the WTI, at US$72 per barrel. Meanwhile during the week Airbnb, Disney, Eli Lilly, Paramount, Reddit and Shopify among many others will be reporting. According to Factset already with 375 S&P 500 companies having reported their second quarter results sales have expanded +5.3% while profits have expanded +11.3% compared to the same quarter last year. Another 79 companies will be reporting this week amid increased global volatility.

Let's start with last month's employment data where the unemployment rate climbed to 4.3% (from 4.1%), the economy generated 114k new jobs (below the 180k expected) and wage inflation eased to 3.6% (from 3.8%). These data, all practically out of line with market expectations, generated a feeling that the US economy would be in free fall and that the FED would again be too late to react. 

This is despite the following comments expressed by Fed Chairman Jerome Powell after maintaining the monetary policy rate at 5.5% last Wednesday:

"A reduction in our policy rate could be on the table as soon as the next meeting in September. The second quarter inflation readings have boosted our confidence and more good data would further strengthen that confidence." 

However, between those words, the Bank of England announced a rate cut of 25 basis points to 5%, while the Bank of Japan announced an increase of 15 basis points to 0.25%. This sequence of messages triggered sharp changes in exchange rates, leading to an appreciation of the yen/dollar exchange rate to ¥142, a weekly appreciation of 7.5%. It is to be expected that, in unison, the central banks of the developed countries will issue a joint statement, since the misalignment in the Japanese market must have left several investment funds with substantial losses in the last few hours, not only because of the misalignment in stocks, but also because of the misalignment in the exchange rate.

On the corporate front, not only have Apple and Amazon posted lower-than-expected sales, but implementation budgets to compete in the artificial intelligence space are uneven and still don't reflect the expected results that drove the stock market to its all-time highs in the middle of last month. Meanwhile, the aforementioned announcements from Intel and Berkshire sent shivers down the stock market's spine. Imagine that at this point, with Berkshire's liquidity, it could buy Disney and still have $100 billion in liquidity.

Finally, on the U.S. political front, Democratic Party candidate Kamala Harris, despite not having managed any formal live interviews, won the support of delegates for her presidential bid. Meanwhile on the geopolitical front, the U.S.-Russia prisoner exchange sent an ambiguous message about support for Ukraine, as the agreement would have been signed between the two powers looking out for their own interests independent of the Russia-Ukraine war, completely throwing the government of Volodymyr Zelenskyy of Ukraine off balance. At the same time, the war in the Middle East continues to progress after Israel killed in Iranian territory one of the main leaders of Hamas, Ismael Haniyeh, who was one of the main Hamas peace negotiators in the region. Already during the weekend, Hezbollah tried to saturate Israel's anti-missile system by launching more than 50 war rockets towards Israel. Finally, the US government declared the Venezuelan opposition leader, Edmundo Gonzalez, as the winner of the elections, accusing President Maduro of having managed an electoral fraud, something that the president denied in no uncertain terms.    

In conclusion, in just a couple of hours there was a sudden change in expectations not only because of the disparate statements by central banks, but also because the ability of technology companies to generate revenues was called into question, all accompanied by greater geopolitical risk.  

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