Marketmind: August rescued by Nvidia, bond rally

A look at the day ahead in U.S. and global markets from Mike Dolan

A dire August for world markets is being rehabilitated in its final week, helped by another sparkling AI-related surprise from chip giant Nvidia and a rebound in battered bond markets.

Frankfurt-listed shares of Nvidia jumped almost 9% on Thursday, lifting other chipmaker stocks and tech shares around the world after the company forecast quarterly revenue that smashed expectations and announced a $25 billion stock buyback.

Nvidia has been the biggest beneficiary of this year’s boom in artificial intelligence, the rise of ChatGPT and other generative AI apps – virtually all of which are powered by the firm’s graphics processors.

Its shares have already tripled in value this year, adding more than $700 billion to market valuation and making it the first trillion-dollar chip firm.

The bar for surprise from Wednesday’s earnings update was sky high, but the company somehow managed to vault it again.

A refocusing on the year’s AI craze has been one catalyst for the late-month bounce in world stock indices, on course today for a fourth straight gain for the first time in more than a month. Despite the rebound the index is still down more than 4% for August – its worst month since last September.

Even before the Nvidia release after the bell on Wednesday, the S&P500 had put in its best day since June – and futures were higher again ahead of Thursday’s open. European and Asia bourses were higher, with even Shanghai ekeing out a small gain.

But with markets now awaiting some fresh policy signals from Federal Reserve chief Jerome Powell’s speech on Friday at the annual Jackson Hole conference, the recoil in sky-high bond borrowing rates promises a firmer foundation for the broader markets rally.

Ironically, the retreat in bond yields comes amid signs of cooling economic activity – but that comes with the significant relief that central banks may not have to squeeze any harder to get inflation back close to targets.

Infected partly by China’s spluttering rebound, August global business surveys missed forecasts again and showed multiple contractions across sectors and countries in Europe.

U.S. survey readings also undershot expectations – but, yet again, they showed overall activity still expanding in contrast to the reading across the Atlantic. The dollar touched its best levels in more than 10 weeks as European currencies swooned and held firm again on Thursday.

Fears of an overheated jobs market also eased a touch. Benchmark data revisions for the year through March showed the red-hot U.S. labour market was not quite as blistering as originally reported – with official estimates of total payroll employment that month cut marginally by 306,000.

New home sales data has something for everyone, with a surprising jump of more than 4% in July as house prices recorded a drop of almost 9% compared with a year earlier and the 30-year fixed mortgage rate topped 7.3% for the first time since 2000.

All of which spins into Powell’s speech – with markets watching closely whether the Fed boss will openly acknowledge a re-acceleration of U.S. demand this summer even after more than five percentage points of policy rate hikes in 18 months.

Bond yields are in retreat in advance of the speech, helped by the easing economic data and a decent 20-year bond auction on Wednesday. Ten-year U.S. Treasury yields remained below 4.2% and hit their lowest in more than a week, with two-year yields holding back below 5%.

Helping the bond bounce and ongoing disinflation hopes has been a fresh pullback in energy prices, with crude oil prices hitting their lowest for the month and year-on-year declines in crude running back close to 20%.

The energy picture was helped further in Europe after Woodside Energy reached an agreement with unions at Australia’s largest liquefied natural gas project, potentially averting a disruption to supplies. The agreement led to a more than 11% decline in wholesale gas prices on Thursday, extending losses following a 15% drop in the previous session.

Events to watch for on Thursday:

* U.S. July durable goods orders, weekly jobless claims, Kansas City Fed August business surveys, Chicago Fed July business survey

* Kansas City Fed hosts Fed’s annual symposium in Jackson Hole

* U.S. corporate earnings: Intuit, Ulta Beauty, Dollar Tree

* U.S. Treasury auctions 30-year inflation-protected securities, 4-week bills

(By Mike Dolan, Editing by Bernadette [email protected]. Twitter: @reutersMikeD)