Marketmind: 'Flash' business funk and AI buzz

[August 23, 2023]  A look at the day ahead in U.S. and global markets from Mike Dolan

A combination of worrying August business soundings from Europe and market buzz about chipmaker Nvidia's earnings later on Wednesday set world stocks on course for a third straight daily gain for the first time this month.

While signs of an alarming second month in a row of euro zone business contraction from early flash readings of monthly surveys is hardly good news, it has served to take more heat out of restive bond markets by flagging a cooling of global demand. Equivalent U.S. surveys are due later.

Euro zone government bond yields and the euro tumbled as traders bet the European Central Bank may soon pause its interest-rate hike campaign, with money markets now pricing less than a 50% chance of further tightening.

With an awkward U.S. 20-year bond auction due on Wednesday, the downbeat news from the euro zone - and a big miss in British surveys too - helped drag long-term U.S. bond yields back lower in early trade.

Ten-year U.S. Treasury yields recoiled to 4.25%, more than 10 basis point off the 16-year high hit early on Tuesday, the 30-year year yield is down more than 12bp from 12-year highs hit this week and even two-year yields slipped back below 5%.

The dollar hit its highest since early June as both the euro and sterling took a hit.

With the Federal Reserve's annual Jackson Hole conference kicking off on Thursday, the latest U.S. economic numbers suggest the central bank need not be too alarmed by a re-acceleration of the economy.

Existing home sales dropped to a six-month low in July, with new home sales numbers due later today. The Philadelphia Fed's August service sector survey also showed a steep drop in activity.

Benchmark revisions to U.S. payrolls estimates for the year through March 2023 are also due out later on Wednesday and many expect they will reveal that the labor market is not quite as tight as had been assumed.

With that all being digested - and aided by the retreat in bond yields - stock investors hope Wednesday's post-bell earnings report from Nvidia can rejuvenate the artificial intelligence craze that saw tech stocks surge earlier this year.

Raindrops hang on a sign for Wall Street outside the New York Stock Exchange in Manhattan in New York City, New York, U.S., October 26, 2020. REUTERS/Mike Segar/File Photo

Nvidia shares have tripled in 2023 and the chip giant's year-to-date increase has led gains among the so-called 'Magnificent Seven' group of megacaps, including Apple and Microsoft. That group's collective rise was responsible for roughly two-thirds of the S&P 500’s increase through July.

The tech focus will have to offset another slide in bank stocks, many of which were hit on Tuesday after a series of credit rate downgrades.

An early rally on Wall St fizzled by the close on Tuesday, but futures were back higher again today ahead of the open.

European and Japanese shares were up smartly too, but mainland Chinese stocks underperformed yet again and dropped another 1%-plus. Chinese stocks are now down almost 10% for the year to date.

Events to watch for on Wednesday:

* Flash August business surveys from United States and around the world, U.S. July new home sales, U.S. benchmark payroll revisions for 2023

* U.S. corporate earnings: Nvidia, Analog Devices, NetApp, Autodesk, Advance Auto Parts, Bath & Body Works

* BRICS Summit in Johannesburg

* U.S. Treasury auctions 20-year bond, 2-yr floating rate notes

(By Mike Dolan, ; editing by John Stonestreet; [e-mail]. Twitter: @reutersMikeD)
 

[© 2023 Thomson Reuters. All rights reserved.]
This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.