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 report to trigger a $300 billion-plus surge in stock prices over the next day, with pricing predicting a nearly 10% move on Thursday — more than the move expected ahead of any Nvidia report in the past three years.
The stock rose more than 1% on Tuesday and was marginally higher in over-the-counter trading early Wednesday. S&P500 and Nasdaq futures were stable.
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.
Even though the S&P 500 has failed to hit new record highs in anticipation of Nvidia’s results, the market remains buoyant as the 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 fairly mixed, with its DXY index slightly higher as the euro eased after weak credit data from the euro zone and expectations that the European Central Bank will make its second rate cut next month before the Fed even gets started.
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
(By Mike Dolan, editing by Gareth Jones; [email protected])
