A look ahead to the coming days in the US and global markets by Mike Dolan
Nvidia’s after-hours quarterly earnings release on Wednesday has equity markets everywhere on hold, while U.S. Treasury markets appear to be taking the recent spate of bond selling quite comfortably.
The wait for the earnings figures from the world’s leading manufacturer of artificial intelligence chips has taken a lot of air out of the start of the week; such is the extent of the influence of the $3.1 trillion company on broader stock indices.
Stock options traders expect Nvidia’s (NVDA.O)opens new tab Report will trigger a share price increase of over $300 billion over the course of the next day. Pricing expects the stock to rise nearly 10% on Thursday – more than the expected price movement before any Nvidia report in the last three years.
The stock rose more than 1% on Tuesday and was slightly higher in over-the-counter trading early Wednesday. S&P 500 and Nasdaq futures were steady.
With recent doubts about excessive spending on AI and the lack of an end product from the new technology so far, the stakes are higher than ever. However, Apple’s planned September 9 announcement of a new iPhone with new AI functionality could allay some of these concerns.
And it’s also an important earnings day for the big tech companies in general – Salesforce is also reporting and CrowdStrike is updating its numbers after a slip-up in July that triggered a global computer outage.
But while the S&P500 (.SPX)opens new tab Although prices have not reached new record highs in anticipation of Nvidia’s results, the market remains buoyant as the US Federal Reserve is finally ready to cut interest rates in three weeks.
Nowhere was this more evident than in the ease with which the Treasury sold another $69 billion in two-year bonds on Tuesday. Demand was stronger than expected, and at 3.86% early Wednesday, two-year bond yields are eyeing a 15-month low.
Another $70 billion worth of 5-year notes will hit the market later today, with the total amount of notes and coupons up for grabs this week alone exceeding half a trillion dollars.
The Treasury is issuing new debt at short maturities, and nearly three-quarters of this massive total this week consists of bonds with maturities of less than 12 months – a move that should have a positive impact on the cost of servicing the debt given falling Fed interest rates.
However, due to the good reception of the new two-year bonds and with a view to the question of how all these securities will ultimately be refinanced in the coming years, the inverted yield curve between two and ten years narrowed to just three basis points – its lowest level in three weeks.
The latest US economic data do little to dampen these exaggerated expectations of monetary easing, which currently amount to up to 104 basis points for the rest of the year.
Even though consumer confidence hit a six-month high in August, Americans are increasingly worried about the state of the labor market – the slowdown of which is now the focus of the Fed’s attention.
And despite numerous supply fears from the Middle East to Libya, oil prices fell again on Wednesday – and still recorded losses of more than 5 percent year-on-year.
The dollar reacted quite mixed. Its DXY index (.DXY)opens new tab was slightly higher as the euro weakened on weak euro zone lending data and expectations that the European Central Bank will cut interest rates for a second time next month, before the Fed even begins work.
The dollar/yen was slightly firmer despite relatively hawkish comments from the Bank of Japan. BOJ Deputy Governor Ryozo Himino reiterated the central bank’s intention to continue raising interest rates if inflation remains on track, while closely monitoring financial market conditions.
In politics, the latest national opinion polls still show Vice President Kamala Harris narrowly ahead of her challenger Donald Trump and she remains the bookies’ favorite. According to the latest Reuters/Ipsos poll, she is also ahead on her economic stance.
Harris and her running mate Tim Walz are expected to give an interview to CNN on Thursday.
Trump, meanwhile, faced a revised federal indictment on Tuesday accusing him of illegally attempting to overturn his 2020 election defeat. Prosecutors have narrowed their approach after the U.S. Supreme Court ruled that former presidents are entitled to broad immunity from criminal prosecution.
In Europe, British Prime Minister Keir Starmer warned on Tuesday of an impending “painful” budget and travelled to Berlin on Wednesday to meet with German Chancellor Olaf Scholz.
The pound has enjoyed a rebound since Labour’s recent election victory, partly due to expectations that the new government will ease relations with former partners in the European Union and seek to weaken some of the economically damaging post-Brexit agreements.
Key developments that should provide more guidance to US markets later on Wednesday:
* Federal Reserve Board Governor Christopher Waller in India and Atlanta Fed President Raphael Bostic speak
* Corporate earnings in the US: Nvidia, Salesforce, CrowdStrike, HP, NetApp, JM Smucker, Cooper Companies, Bath & Body Works
* US Treasury sells $70 billion worth of 5-year bonds and sells two-year FRNs
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