Stock Market Recovers as Inflation Data Fuels Rate Cut Expectations, But Crypto Struggles to Gain Traction
The stock market experienced a positive week as encouraging inflation data bolstered expectations for interest rate cuts in the United States. This positive sentiment, however, didn’t extend to the cryptocurrency market, with Bitcoin and Ether struggling to break past resistance levels. In company news, a judge presiding over the Epic Games vs. Google lawsuit signaled his intent to order Google to open up its app store, a significant development that came to light right after the company’s Made by Google event.
Key Takeaways:
- The VIX index, a measure of market volatility, dropped sharply from 33.71 a week earlier to 20 on Monday, indicating a calmer market environment.
- Positive inflation data, specifically the July producer price index (PPI) and consumer price index (CPI) reports, fueled optimism about a potential rate cut in September.
- Bitcoin continues to trade within a range, with analysts expecting further declines in the coming weeks.
- Ethereum, which hasn’t fully recovered from the August 5 sell-off, is also facing resistance, but analysts point to historically bullish signals from low gas fees.
- Google had a muted response to its Made by Google event, with its share price remaining largely unchanged. A potential breakup lawsuit from the US Department of Justice cast a shadow over the event.
- NVIDIA‘s highly anticipated Blackwell GPUs are facing delays, impacting its share price. Reports point to design challenges and complexities with Taiwan Semiconductor Manufacturing Company (TSM)‘s advanced packaging technology.
- California’s SB 1047, proposing regulations for AI safety, advanced through the Senate Appropriations Committee with significant amendments, including the removal of a proposed Frontier Model Division.
A Respite in the Market: Inflation Data Sparks Optimism
The market kicked off the week with subdued trading activity as investors awaited key inflation data. The overall market sentiment leaned positive, with most major indexes signaling recovery from recent declines. Tuesday brought a cautious optimism as investors braced for the release of the July producer price index (PPI) data. The index rose 0.1 percent to reach 2.2 percent, slightly lower than the expected 2.3 percent. This positive data, combined with earlier optimism surrounding the consumer price index (CPI) report, spurred a strong market opening on Wednesday.
The CPI report, released Wednesday, indicated a seasonally adjusted increase of 0.2 percent compared to June, with the 12-month inflation rate settling at 2.9 percent, its lowest point since March 2021. As a result, the S&P 500 and S&P/TSX Composite Index closed higher, but losses for Alphabet, Tesla, and Meta Platforms weighed down the Nasdaq Composite.
Thursday marked a significant shift in market sentiment, with all major sectors seeing gains, fueled by the almost guaranteed rate cut for September. The TSX saw its sixth daily win, marking its longest winning streak in 13 months.
The week culminated with Friday’s trading session, where the VIX index opened at 15.29, reaching its lowest point since July 23. All major indexes remained positive, with the Russell 2000 Index leading the gains as investors rotated back into small-cap stocks.
By the end of the week, all major indexes closed higher. The Nasdaq Composite ended at 17,631.72, the S&P 500 at 5,554.25, and the Nasdaq 100 at 19,508.52. The Russell 2000 saw the largest increase, gaining 0.3 percent to close at 2,141.92.
Bitcoin in "Accumulation Mode" but Struggles to Break Out
Bitcoin’s price fluctuated throughout the week. Following a late-week climb, the cryptocurrency saw a near 5 percent drop on Sunday, settling around US$58,500 by the end of the day. For most of the week, Bitcoin traded within a range of US$58,000 to US$60,000, with analysts anticipating further declines in the coming weeks. Data suggests a trend of seller dominance, driving this price stagnation.
Despite this bearish outlook, Bitcoin briefly surpassed US$61,000 after Tuesday’s PPI report, holding near that mark in the early hours of Wednesday. However, this positive momentum was quickly reversed following the release of Wednesday’s CPI report. Bitcoin dipped below the US$58,000 mark again late Thursday afternoon, dragging other major cryptocurrencies down with it.
Despite its recent struggles, data from Glassnode suggests that Bitcoin is back in "accumulation mode", a phase where investors actively purchase and hold onto the asset. Analysts predict a potential breakout in the near future as buyer interest grows.
Ether, similarly, hasn’t fully recovered from the August 5 crypto sell-off, with a 14 percent drop in the past week. Ether traded between US$2,600 and US$2,800 throughout the week.
While both Bitcoin and Ether have experienced hurdles in breaking resistance levels, analysts remain hopeful that the positive market sentiment driven by the recent inflation data could eventually benefit these cryptocurrencies.
Google’s Made by Google Event Meets with Tepid Response
At its Made by Google event on Tuesday, Google unveiled four new phones, alongside updated versions of the Pixel Watch and Pixel Buds. The company’s presentation largely focused on advancements in on-device artificial intelligence (AI), achieved through the integration of the new G4 Tensor chip and the Gemini system into the Android operating system.
The G4 chip is expected to enhance app coordination and productivity, offering users a smoother experience. The devices will also come with Gemini Live, Google’s conversational AI agent, described as an assistant capable of engaging in lengthy, unstructured conversations to assist users with brainstorming, creative thinking, and handling complex problems.
However, investor response to the event was muted. Alphabet’s share price saw minimal changes after the event. The stock dropped 3.48 percent by midday Wednesday following reports that the US Department of Justice may seek to break up Google in the wake of Judge Amit Mehta’s August 5 ruling that the company operated as an illegal monopoly.
Further adding to the company’s challenges, US District Judge James Donato, who presided over the Epic Games vs. Google antitrust lawsuit last year, announced during a separate hearing on Wednesday that he intends to order Google to open up its app store. He also stated that he is considering a solution that could be implemented in countries outside the US as well. This decision stems from last year’s verdict where Judge Donato sided with Epic Games, who accused Google of anti-competitive practices related to the Google Play Store. A final ruling is expected in the coming weeks.
Despite the negative news surrounding antitrust scrutiny, Google shares rebounded on Friday morning, gaining 1.93 percent in the first hour of trading.
NVIDIA’s GPU Rollout Faces Delays, Impacting Share Price
Rumors of delays in the launch of NVIDIA‘s highly anticipated Blackwell GPUs continue to circulate. Reports, including a story broken on August 2 by the Information, alleged that the rollout of the Blackwell GPUs would be postponed until at least the first quarter of 2025. This delay is significant, as the GPUs were initially expected to launch by the end of this year.
A report by SemiAnalysis attributes the delay to a design issue related to bridge dies and complications with Taiwan Semiconductor Manufacturing Company (TSM)‘s CoWoS-L packaging technology. This technology, used for the first time in a mass-market chip, has seemingly presented unforeseen challenges. The report suggests that the Blackwell B200 GPUs will ship in limited quantities, and the B200A GPUs, designed for lower-end and mid-range AI systems, may not see a release until Q2 or even Q3 2025.
The timing of the announcement couldn’t have been worse, coinciding with the tumultuous Asian market events on August 5 that prompted panic selling in large-cap technology stocks.
NVIDIA witnessed a significant 15 percent drop in its share price from its Friday close to its lowest point on Monday. At the time of this writing, the company’s share price is below its value from a month prior.
Further compounding NVIDIA’s issues, Hon Hai Precision Industry, also known as Foxconn, a major Taiwanese server manufacturer, revealed on Wednesday that only a limited number of servers equipped with NVIDIA’s GB200 (a GPU combining two Blackwell GPUs with a Grace central processing unit) will be released in 2024.
According to Bloomberg, NVIDIA spokesperson James Wu confirmed during a conference call that Foxconn will be among the first to ship products featuring GB200 chips. However, he added that most of the servers will ship in Q1 2025.
California AI Bill Advances with Amendments
The California Senate Appropriations Committee approved SB 1047, a bill proposing regulations to ensure the safety of AI technologies, after incorporating several amendments.
Originally introduced in February by Senator Scott Wiener (D-CA), the initial draft called for tech companies to thoroughly test their AI technologies before releasing them to the public. The bill also empowered California’s attorney general to take legal action against companies for negligent safety practices, even before a catastrophic incident.
The bill faced significant criticism from prominent figures in the tech industry, with Stanford professor Fei-Fei Li writing in Fortune magazine that the bill, despite its positive intent, would stifle innovation and create various unintended consequences, not only for California but also for the nation as a whole.
AI firm Anthropic actively participated in discussions surrounding the bill, sending a letter to Buffy Wicks, chair of the California Assembly Appropriations Committee, in July with proposed amendments. Some of these suggestions were incorporated into the new draft.
Under the revamped proposal, California’s attorney general now has the authority to take injunctive relief and sue if a model causes a catastrophic event. The amendments also remove criminal liability for AI labs, ease safety requirements for AI models, and exempt models valued under US$10 million from developer responsibility.
The amendments also removed the proposed Frontier Model Division, a state agency that would have been responsible for overseeing compliance, issuing guidance, and advising state officials on specific aspects of AI. These responsibilities are now shifted to a Board of Frontier Models, which has been expanded from five members to nine.
Despite the amendments, the bill has faced resistance from the White House. Eight California Congress members sent a letter to Governor Gavin Newsom on Thursday, requesting him to veto SB 1047. They argued that the bill is not beneficial to the state, the startup community, scientific development, or even for protection against potential harm associated with AI development.
SB 1047 will now proceed to the California Assembly floor for a final vote. If it passes there, it will need another vote of approval in the California Senate before it can be signed into law.
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