Morning Bid: Pre-Nvidia hesitation obscures record high
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[August 27, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street stocks are back just shy of new record highs, lapping up the
likely start of Federal Reserve easing next month but wary of
Wednesday's quarterly update from artificial intelligence behemoth
Nvidia.
There were three main reasons cited for this month's early "head fake"
for stocks - a return of jobs-related recession worries, a puncturing of
the short-yen, short-volatility trade and creeping doubts about AI
overspend and its ultimate promise.
Recession fears have been doused to some extent by data seen since the
July employment report and Fed chair Jerome Powell's clear indication on
Friday that "the time has come" to ease back on policy rates.
And the speculative yen 'carry trade' and excessively low volatility
gauges have returned close to more normal levels.
But earnings from $3.1 trillion megacap Nvidia, the second most valuable
U.S. stock, are now awaited with bated breath to see if the AI theme is
still on track.
Nvidia, whose stock is up more than 150% this year, is expected to
report more than a doubling of its second-quarter revenue but the bar is
now so high to impress the market, there's some trepidation about
guidance ahead.
The stock is valued at about 37 times its forward earnings, compared
with an average of around 29 for the top six tech companies on the
benchmark index that includes the chipmaker.
Results from Dell and Salesforce this week also add to the tech picture.
Nvidia shares fell back about 2% on Monday in advance of its report,
knocking back the main indexes in the process and stopping the S&P500
less than 0.3% from new records.
But it was up marginally ahead of Tuesday's bell - as were index
futures.
Facing a heavy week of Treasury debt sales, where some $183 billion of
2-, 5- and 7-year notes go under the hammer, Treasury yields have backed
up slightly despite the Fed optimism. First out of the traps on Tuesday
is $69 billion of two-year paper.
Irking Treasury yields additionally has been a pop higher in world crude
oil prices this week amid renewed tensions in the Middle East and
outages in Libya, although U.S. crude gains have been modest and remain
negative year-on-year.
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A smartphone with a displayed NVIDIA logo is placed on a computer
motherboard in this illustration taken March 6, 2023. REUTERS/Dado
Ruvic/Illustration/File Photo
The latest test of U.S. economic resilience comes with a readout
later on consumer confidence for August, but Friday's release of the
Fed-favored PCE inflation gauge probably marks the biggest macro
data release of the week.
The dollar index recovered marginally from Monday's lowest level in
more than year - in line with firmer Treasury yields.
But 100 basis points of Fed easing remains in futures prices to the
end of the year - implying that markets think at least one of the
Fed's three remaining 2024 meetings will deliver a 50bp cut.
San Francisco Federal Reserve President Mary Daly on Monday said
"the time is upon us" to cut interest rates, likely starting with a
quarter-percentage point reduction in borrowing costs. Asked if
there is anything that could derail a rate cut at the U.S. central
bank's Sept. 17-18 policy meeting, Daly told Bloomberg TV that it
"would be hard to imagine at this point."
The yen slipped back too, however, helping Japan's Nikkei higher.
Chinese mainland stock markets fell back, with news of 100% Canadian
tariffs weighing on shares of electric vehicle and steel makers and
downbeat comments about domestic demand dragging on e-commerce
shares. It was a more mixed picture in Hong Kong, with financials
steadying the Hang Seng.
European stocks were higher, led by miners.
BHP Group said it will focus on growing its copper business through
existing and incoming projects after its failed attempt to buy Anglo
American as it reported a better-than-expected 2% rise in annual
underlying profit.
Key developments that should provide more direction to U.S. markets
later on Tuesday:
* US August consumer confidence, June home prices, Richmond Fed Aug
business surveys, Dallas Fed's Aug service sector survey
* US Treasury sells $69 billion of 2-year notes
(Editing by Bernadette Baum)
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