Tech stocks recovered from the knee-jerk selling of Nvidia, which plunged as much as 8% after the company's Q3 guidance disappointed some even as Q2 results met or beat analysts’ estimates on nearly every measure and showed that revenue more than doubled in the quarter, reinforcing the earnings power of artificial intelligence. As of 7:50am ET, Nasdaq 100 futures added 0.1% after sliding as much 1.4% earlier as Nvidia, which had tumbled sharply in trading after the close of US exchanges, trimmed losses to just down only 2% in pre-market trading. Intel Corp., Apple Inc. and Microsoft Corp. all posted small gains; S&P 500 futs rose 0.2%, fully reversing an earlier drop as Germany’s DAX Index hit a new record. Treasury 10-year yields and the dollar was steady. West Texas Intermediate crude rose to $75 after sliding back under $74 yesterday. On the macro calendar, we have the second 2Q GDP estimate, July trade balance and wholesale inventories and initial jobless claims (8:30am) and July pending home sales (10am).
In premarket trading, Nvidia fell 3%, reversing a much bigger plunge, after the company failed to live up to investor hopes with its latest results, delivering an underwhelming forecast and news of production snags with its much-awaited Blackwell chips. Here are some other notable premarket movers:
As extensively discussed yesterday, Nvidia’s Q3 earnings report, the most anticipated part of the tech industry’s earnings season, beat analysts’ estimates on nearly every measure, but Nvidia spoiled investors have grown accustomed to blowout quarters, and the latest numbers didn’t qualify especially as regards guidance which came in below some of the more optimistic estimates. NVDA revenue more than doubled to $30 billion in the fiscal second quarter, and the company said third-quarter revenue will be about $32.5 billion; while analysts had predicted $31.9 billion on average, estimates ranged as high as $37.9 billion. Of concern to investors was the fact that Nvidia’s next big cash cow — the new Blackwell processor lineup — has proved more challenging to manufacture than anticipated. The product is the next generation of the company’s dominant artificial intelligence processor.
“Fundamentally, market participants are reflecting on those Nvidia results and saying: they were actually pretty good,” said Michael Brown, a senior strategist at Pepperstone Group Ltd. “The bar for a beat was impossibly high, so the results don’t derail the bull case for the chipmakers or the equity market more broadly.”
In any case, with Q2 earnings season officially at an end, focus is turning back to the macro landscape. Money markets are wagering on 100 basis points worth of rate cuts by year-end but uncertainty remains as to whether the Federal Reserve will ease policy by a quarter-point next month or deliver a larger 50 basis-point cut. Atlanta Fed President Raphael Bostic said it “may be time to cut,” but he’s still looking for additional data to support lowering rates next month. Key to that will be a reading of the Fed’s preferred inflation gauge, the core PCE, due Friday.
“What investors are looking for now is further confirmation that if economic momentum is weakening, the Federal Reserve are going to ride to the rescue and provide a series of substantial cuts,” said Brian O’Reilly, head of market strategy at Mediolanum International Funds.
European stocks gain as traders added to their ECB interest-rate cut bets after soft inflation data from Spain and Germany which reinforced expectations for a European Central Bank rate cut in September. The Stoxx 600 rises 0.8% to the highest since mid July while Germany’s DAX gained as much as 0.7%, reaching 18,912.47 points and topping its previous peak of May 15. Here are some of the biggest movers on Thursday:
Earlier in the session, Asian stocks fell as tech shares declined in the wake of Nvidia Corp.’s disappointing forecast, while Chinese shares were mixed amid earnings misses. The MSCI Asia Pacific Index dropped as much as 0.6% before paring, with TSMC, Samsung Electronics and SK Hynix among the biggest drags. Asian chip shares declined as Nvidia’s less-than-outstanding outlook cooled investor sentiment on the artificial intelligence trade. Benchmarks in Taiwan and South Korea led declines in the region. “Nvidia had a good result yet share price was down on the back of big expectations for next year,” said Jun Bei Liu, a portfolio manager at Sydney-based Tribeca Investment Partners. The cooling-off in the shares after their strong performance this year “provides buying opportunities as long-term structural growth remains intact.”
In FX, the Bloomberg Dollar Spot Index slips 0.1% drop ahead of US GDP data and weekly jobless claims data; risk-sensitive currencies including the New Zealand and Australian dollars lead gains. the euro underperforms its G-10 rivals, falling 0.2% against the greenback after softer than expected inflation prints out of Germany and Spain. EUR/USD drops as much as 0.4% to 1.1072, lowest since Aug. 20 and set for its worst two-day run in more than two months. One-week risk reversals now at 12 basis points, versus Wednesday’s high at 58 basis points. The kiwi dollar is the best performer, rising 0.6% after New Zealand business confidence hit a 10-year high. The offshore yuan climbs 0.6%.
Treasuries are marginally richer across the curve following another narrow overnight trading range, keeping most yields within 1bp of Wednesday’s closing levels. US 10-year trades around 3.83% with bunds in the sector outperforming slightly while gilts keep pace. Most of the price action occurred during European morning as the German curve bull-steepened Core European rates outperform led by German front-end, where 2-year yields are lower by around 4bp on the day following domestic inflation data; German 10-year yields falling 2bps to 2.24%. This week’s Treasury coupon auction cycle concludes with $44b 7-year note sale at 1pm, following good demand for 2- and 5-year notes. WI 7-year yield near 3.73% is ~43bp richer than last month’s result and, like the earlier sales, lower than results over the past year at least
In commodities, oil prices declined, with WTI rising 1% to $75 a barrel. Spot gold rises $16 to around $2,520/oz.
Looking at today's US data calendar, we have the second 2Q GDP estimate, July trade balance and wholesale inventories and initial jobless claims (8:30am) and July pending home sales (10am). Fed speaker slate includes Bostic at 3:30pm.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly with modest losses following the weak lead from Wall Street and in the aftermath of NVIDIA's ill-received earnings. The tech sector was among the laggards in the region with Samsung Electronics (005930 KS), Tokyo Electron (8035 JT), and TSMC (2330 TT) all opening lower by 2-3%. ASX 200 was subdued amid the broader market mood and with Australia's earnings season picking up in pace. Materials, energy and Tech resided as some of the lagging sectors. Nikkei 225 briefly dipped under USD 38k in early trade, with Japanese activity also affected by the approaching Typhoon Shanshan, although the index eventually eked mild gains amid gains in Industrial names. Hang Seng and Shanghai Comp both conformed to the APAC mood and later extended their losses, whilst earnings season in Hong Kong saw Meituan jump almost 10% while Li Autos slid 10.6%.
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European bourses, Stoxx 600 (+0.5%) began the session with a modest upward bias. As the session progressed, indices continued to edge higher, but most notably in the Euro Stoxx 50 (+0.9%) and AEX (+0.9%), with Tech leading, despite NVIDIA (-2.8% pre-market) slipping post-earnings (albeit. metrics were strong). European sectors hold a strong positive bias. Tech is the clear outperformer, propped up by gains in the ASM International (+2.4%) and ASML (+2%), benefiting from strong NVIDIA results, despite the Co. itself being down by around 2.8% in the pre-market. Alcohol names shot higher following an announcement that China's Commerce Ministry will not impose provisional anti-dumping subsidy on brandy imported from the EU; Pernod Ricard (+4.5%) / Remy Cointreau (+7.6%). US Equity Futures (ES +0.1%, NQ +0.1% RTY +0.6%) are flat/mixed, with very slight outperformance in the RTY, whilst the NQ fails to find a firm direction, following NVIDIA’s results on Wednesday.
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DB's Jim Reid concludes the overnight wrap
As we go to press this morning, the main market focus is on Nvidia’s latest results, which came out after the US close last night. Although the results slightly beat expectations, their share price was down around -7% in after-hours trading, partly because it fell short of some estimates that had been looking for an even stronger release. For instance, the revenue outperformance was the smallest relative to expectations in six quarters, so this wasn’t the sort of massive beat that Nvidia has often reported over the last 18 months. At the same time, the Q3 revenue guidance came in a touch above the average estimate ($32.5bn vs $31.9bn est.) but still well within the range of analysts’ views. So there’s been a pullback overnight, and that decline in after-hours trading has built on the -2.10% decline in yesterday’s session. In turn, US equity futures are lower more broadly this morning, with those on the S&P 500 (-0.33%) and the NASDAQ 100 (-0.64%) both falling back.
That more negative tone has also been evident overnight, with many of the major indices losing ground in Asia. That includes losses for the KOSPI (-0.81%), the Hang Seng (-0.65%) and the Shanghai Comp (-0.45%), alongside smaller declines for the CSI 300 (-0.07%) and the Nikkei (-0.06%).
Ahead of Nvidia’s release, US markets had already lost ground yesterday, with the S&P 500 filling -0.60%, though it did partially recover from a -1.1% fall intra-day. The decline came primarily because of losses among tech stocks, with the Magnificent 7 (-1.19%) falling back for a third consecutive day, whilst the NASDAQ also fell -1.12% to a two-week low. Sentiment around tech wasn’t helped by a -19.02% drop for Super Micro Computer, which saw the largest decline in the S&P 500 yesterday after they said they’d delay filing their annual financial disclosures. And the pick up in volatility ahead of Nvidia’s results also saw the VIX index rise +1.68pts to 17.11, its largest daily increase since the market turmoil on August 5.
To be fair, there were some relatively brighter spots, with more than 40% of the S&P 500 constituents higher on the day, while the Dow Jones (-0.39%) saw a more modest decline, having initially been on track to close at a new all-time high. It was a strong day for banks as well, with those in the S&P 500 up +0.70%. And in other news, Berkshire Hathaway (+0.86%) became the first US company that’s not in the tech sector to achieve a $1 trillion market capitalisation.
Whilst equities were losing ground, US Treasuries put in a pretty subdued performance, with the main theme being an ongoing curve steepening. While there was little data or commentary from Fed officials, the 2yr yield still fell by -3.4bps to 3.87%, its lowest closing level since May 2023. By contrast, the 10yr yield was up +1.3bps to 3.84% and the 2s10s slope ended the session at -3.4bps, only a basis point from its 2-year high on August 7. Meanwhile, we got more indication that the prospect of rate cuts was filtering through to the real economy. Specifically, data from the Mortgage Bankers Association showed that the contract rate on a 30yr mortgage was down to 6.44%, the lowest since April 2023. Bear in mind that investors are still pricing in rapid rate cuts over the months ahead, with over 100bps priced in by the December meeting. This pricing was little changed despite somewhat hawkish comments from Atlanta Fed’s Bostic later on, who said that it “may be time” to cut but that he still wanted to see additional data to support a September cut.
Today, we should start to get some more data that will help to shape investors’ views. In particular, there’s the weekly initial jobless claims out of the US, which will offer a timely indicator on the state of the labour market. We’ll also get the second estimate of Q2 GDP, and although that’s a backward-looking reading, that will include the latest revisions to core PCE inflation in Q2. Any revisions to that would add to the uncertainty when it comes to tomorrow’s core PCE print for July, so that could have implications for the 25bps vs 50bps debate depending how that looks. As of this morning, futures are placing a 35% probability on a 50bp rate cut in September, so the view remains that 25 is more likely. But it’s far from a done deal, and we’ve still got both the jobs report and CPI release for August before that meeting, so plenty of time for that to shift around still.
Over in Europe, markets put in a more robust performance, with the STOXX 600 (+0.33%) closing in on its all-time high, ending the day just -0.78% beneath its record from May. Germany’s DAX (+0.54%) was even closer to its own record, with yesterday’s advance leaving it just -0.46% beneath its peak. That optimism was also echoed among sovereign bonds, with yields on 10yr bunds (-3.0bps), OATs (-2.8bps) and BTPs (-2.1bps) all moving lower.
Europe will stay in focus today, as we’ll start to get the flash HICP prints for August, including Germany and Spain today, ahead of the Euro Area release tomorrow. Those will be important for the ECB, as even though a September cut is widely expected, markets have been pricing around a 50% chance of a second cut at the subsequent meeting in October. So the release could influence whether they cut at a quarterly pace (having already delivered an initial cut in June), or whether they speed that up and start cutting every meeting. In a mini series of notes this week, our European economists examine the factors that will determine both how far (see here) and how fast (see here) the ECB is likely to cut. When it comes to upcoming inflation data, our economists expect the Euro Area headline to slow to +2.2% in August, which would be the weakest since July 2021, with core HICP also coming down to +2.8%.
There was very little other data yesterday, although the Euro Area M3 money supply grew by +2.3% year-on-year in July (vs. +2.7% expected). Otherwise, French consumer confidence ticked up to 92 in August as expected, which is its highest level since February 2022.
To the day ahead now, and data releases include the German and Spanish CPI prints for August. In the US, we’ll also get the second estimate of Q2 GDP, the weekly initial jobless claims, and pending home sales for July. From central banks, we’ll hear from the ECB’s Lane and Nagel, as well as the Fed’s Bostic.