Nvidia surprised the street with another major beat to guidance estimates for its Q2 earnings release - arguably the most widely watched corporate earnings report globally in 2023, with the stock +9% higher in after-hours trading.

However, in the following Asia trading session - which is the world's first region to start the full trading day, and thereby the first to react to the A.I. giant's strong quarter and optimistic guidance - the various market reactions were surprisingly tepid. Shares of TSMC, SK Hynix, Advantest and other "A.I. plays" were consistent in being fairly muted. The broader Nikkei225 and Nasdaq 100 index futures were also limited in both upside and in volume traded.

Weston Nakamura walks through these market cues out of Asia, which point to a potentially disappointing market response on NVDA shares themselves at US market open later, as well as other A.I. thematic shares globally.

Weston also provides the market background of what had helped drive the A.I. and NDX momentum from last quarter, as well as the August market sell-off for critical context in understanding NVDA and A.I. momentum plays.

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China has had a very rough 2023, in markets and in the real economy. But, last week was a particularly brutal week for China’s markets, as the Hang Seng Index closed the week in bear market territory, and the yuan edged ever closer to its treacherous 15-year lows - all of which had spilled over to broader global markets.

Weston Nakamura gives a comprehensive overview of what happened in China through the week of utmost consequence to global markets, including record strong yuan fixings, Country Garden Holdings Group’s bond defaults, Zhongzhi Enterprise Group and the $3 trillion Chinese shadow banking industry contagion risk, and China’s policymakers daily policy proposals in attempt to support markets (to no avail), and much more.

This is not only a way to catch up on a critical and consequential week of non-stop headlines and developments, but this is the ongoing state of affairs in China that had been dragging global equity markets down since the start of August, and therefore is relevant to all investors everywhere.

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As followers of Market Depth Podcast know- this year's NASDAQ upside rally was largely driven by Japan and the Nikkei225. Now, Weston Nakamura explains how the current market sell-off is being driven by China, and the plunging yuan.

Weston also discusses his views on the Japanese yen, and how he is approaching the FX market intervention risk, as the yen weakens to previous unilateral intervention levels - as well as his views on the Chinese yuan, also reaching critical levels despite heavy-handed state intervention underway.

This is the episode that will make equity investors, particularly US equities, to fixate on the Asia market impact effect.

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Ahead of the US July CPI data and the 30-year Treasury auction, Weston Nakamura follows up from the previous episode of Market Depth with an update on bond market activity from Japanese investors, who have been driving the week's drop in global sovereign bond yields via the JGB and US Treasury markets.

Using futures markets, Weston shows the renewed bullish sentiment as exhibited by a surprisingly strong 30-year JGB auction, and a smooth scheduled Bank of Japan bond buying operation.

Japan is once again back to anchoring global bond yields - for now.

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With still no further clarity on Bank of Japan’s new policy framework of Yield Curve Control, and currency and cash bond markets out of sync, Weston Nakamura examines market price action and activity on US and Japan rates through the lens of futures markets, in order to determine if cross asset market behavior is normalizing.

Weston also notes the schedule for this week, in which there will be 30-year auctions held in both the Japanese Government Bond market, as well as the US Treasury market, within 2 days of one another. Given the respective policy setups for US debt issuance and Bank of Japan YCC, there may be competition for investors’ capital playing out at these long-dated bond auctions.

Finally, Weston offers a potential theory as to why Fitch Ratings had suddenly downgraded their credit rating of US debt, while subsequently publishing positive commentary on Japan’s credit risk in light of the Bank of Japan’s surprise jump in interest rates - which largely went unnoticed. In doing so, Weston dives into the very active world of of yen-denominated foreign bond issuance, in which global corporates and sovereigns have been rushing in to Japan in order to tap the last bastion of cheap money left.

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Developed markets globally saw a dramatic rise in sovereign bond yields that spanned this whole week - notably at the long end of US Treasuries. Some attribute the move to Fitch Ratings downgrade of US debt, while others point to the government's announcement to boost its bond issuance in the coming months.

Following up from the previous episode of Market Depth, Weston Nakamura shows how this week's global bond rout not only stems directly from the Japanese Government Bond market and the Bank of Japan's recent surprise policy change to the way in which it conducts Yield Curve Control policy, but also how previous major episodes of extreme global bond market volatility had been triggered by an illiquid, malfunctioning JGB market, and Bank of Japan meetings as market moving catalysts.

In light of these recent developments in policy experimentation and purposeful obfuscation by the central bank, Weston also provides an explainer on a "trading-day-in-the-life" of a Bank of Japan bond buying operation for a critical dose of clarity as we move forward with Bank of Japan's experimental processes.

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At the July 2023 Monetary Policy Meeting, the Bank of Japan took markets by surprise (after "pre-announcing" its policy 10 hours prior during US trading hours and moving global currency, equity and bond markets) by making a significant change to its Yield Curve Control policy framework, in which it lifts the upper trading band on 10-year JGB yields from 0.50% to 1%. The central bank also made a major revision upwards on its inflation forecasts for fiscal year 2023 to 2.5%, well above its 2% target. This is the first policy change implemented under newly appointed Governor Ueda.

While the consensus debate revolves around whether or not this is the start of Bank of Japan's exit from its outlier accommodative policies, Tokyo-based Weston Nakamura believes that there is far more to the policy decision than just a "YCC tweak."

Aided by utilizing financial media outlets to move markets and clear out existing positions, the Bank of Japan is attempting to wrestle its policy away from the hands of markets, and return it back under its own control by purposely introducing elements of confusion and uncertainty - which it labels as "flexibility."

Weston gives a historic overview of how Yield Curve Control trading bands had been a market-creation in the first place, what the market implications are, and why this policy change fundamentally reshapes how the Bank of Japan and market participants interact.

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The final week of July ends with the three major central banks’ policy decisions - the Fed, the ECB, and the Bank of Japan - each with their own set of issues and tools respectively, and all of which are highly interconnected with one another. However, the economic backdrop is completely unique this time - as Japan now has a higher inflation rate than the US, while still in easing mode.

Would the Bank of Japan really begin tightening monetary policy, just as the Federal Reserve, the European Central Bank and others are finished? Just a hint of policy convergence, particularly between the ECB and the Bank of Japan, can have significant, widespread market impact.

Weston Nakamura begins the episode with an update on the PBOC’s daily fixing of the Chinese yuan exchange rate. He then discusses the Bank of Japan once again leaking their own policy through media outlets ahead of the official policy meeting. And finally, Weston takes a look across various markets globally, and assesses what may occur if sentiment around policy divergence shifts to policy convergence.

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With the strongest daily yuan fixing since November 2022, along with state banks sustaining dollar-selling, and the adjustment of a cross border financing rule to further discourage yuan sell pressure all in combination, the People’s Bank of China was able to forcefully rally the yuan significantly higher.

In addition, China's USD-denominated junk bond market sees its worst three-day plunge so far this year, as property developers Wanda Group, as well as two state-backed firms signal imminent default.

Weston Nakamura ties the efforts of the PBOC to uplift the yuan with the severe volatility in China's USD-bond markets, and points to China's alarming behavior that something of utmost concern seems underway.

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With China's Q2 GDP and retail sales figures missing consensus estimates for yet another round of data disappointment out of China, and the PBOC injecting a mere 3 billion yuan of liquidity to their 1-year MLF operation. Weston Nakamura looks at currency and commodity markets as weakness across China's economic landscape continues to be left unattended by policymakers' lack of stimulus measures.

Weston also discusses why Wall Street economists seem to be caught off-guard by China's economic data deterioration time and again, particularly in the first half of 2023.

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Disclaimer: Nothing discussed on Market Depth should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.