A look at the day ahead in U.S. and global markets from Mike Dolan
After a stifling August so far, world markets caught some relief on Tuesday as this month’s bond squeeze eased a bit – with investors now awaiting signals from Wyoming and distracted by hopes of a reprise of the early-year AI craze.
There was little to trigger the bounce, other than U.S. 10-year Treasury yields being dragged back from 16-year highs of 4.36% ahead of Thursday’s annual Federal Reserve conference in Jackson Hole – at which some indications of longer-term Fed policy thinking is eyed.
No news proved good news in China – where the relentless stream of negativity around the country’s spluttering economy and ailing property sector seemed to dry up as President Xi Jinping attended the BRICS summit in South Africa. The onshore yuan steadied amid supportive action by China’s state banks in the swaps market, and Chinese stocks perked up from the year’s lows.
But the global rebound was first seeded on Wall St on Monday as tech stocks got a lift ahead of chip giant Nvidia’s quarterly results on Wednesday, with hopes of some refocus on the artificial intelligence boom that’s already lifted Nvidia’s stock 220% for the year to date. The Nasdaq 100 clocked its first gain in a week, adding 1.6% for its biggest rise of the month, and the S&P500 also notched its first advance in five.
Overall, MSCI’s all-country index was on course on Tuesday for its first back-to-back daily gains of August so far. And S&P futures were up ahead of the bell.
Even though Treasury yields hit new cycle highs in Asia trading, there was some demand at those levels as investors await the Jackson Hole event and Fed Chair Jerome Powell’s keynote speech there on Friday. The dollar eased back in line with the retreat in yields too.
Futures markets are now see a 50-50 chance of another Fed hike next month given the recent strength of the economy – but the focus this week may well be on how long rates stay at these levels and whether estimates of long-term sustainable interest rates have risen.
There were background concerns about the impact on U.S. banks of this latest hit to bond prices and borrowing rates.
Credit-rating firm S&P Global late on Monday cut ratings and revised its outlook for multiple mid-tier U.S. banks, following a similar move by Moody’s, and warned funding risks and weaker profitability will likely test the sector’s credit strength.
And U.S. government spending curbs were also set to come back into focus in Congress next month, with the outside chance of a government shutdown as Republican factions push for more cuts beyond what was agreed to raise the debt ceiling in May.
Elsewhere, investors were enthralled by plans by SoftBank’s chip designer Arm for the biggest initial public offering of the year – even after reporting 1% fall in annual revenue.
And “Call of Duty” maker Activision will sell its non-European streaming rights to Ubisoft Entertainment to get the biggest deal yet in video-gaming past British regulators, potential owner Microsoft said on Tuesday.
Events to watch for on Tuesday:
* U.S. July existing home sales, Richmond Fed August business survey, Philadelphia Fed service sector survey
* Richmond Federal Reserve President Thomas Barkin, Chicago Fed President Austan Goolsbee, Fed board governor Michelle Bowman
* U.S. corporate earnings: Lowe’s, Medtronic
* BRICS Summit in Johannesburg. China’s President Xi Jinping meets SAfrican President Cyril Ramaphosa in Pretoria beforehand
(By Mike Dolan, editing by Christina Fincher, [email protected]. Twitter: @reutersMikeD)