Nasdaq dips, despite Nvidia blowout – with bond yields climbing and dollar benefitting

Stocks sold off this morning, led by Nasdaq off 1.2%, despite blowout earnings from AI darling Nvidia. Bond yields were on the rise again as traders anticipate tomorrow morning's speech by Fed Chair Jerome Powell at the Jackson Hole, Wyoming symposium, and after a Fed president said it is "extremely likely" the central bank will need to hold interest rates higher to bring down inflation. One winner could be the US currency, with the dollar index showing sign of a breakout to the upside.

Bottom-line: risk-off.

TODAY’S MAJOR NEWS

Nvidia earnings blowout puts AI center stage

Nvidia rallied after the company trounced second quarter earnings smashed expectations for sales and profits – but how sustainable is the stock's growth, having more than tripled this year? Nvidia is trading at 245x trailing earnings and 45x trailing sales. Bulls argue that Nvidia’s portfolio of AI-enabled chipsets and related software IP are transformational for so many industries that it has unrivalled growth potential. Bears counter that we’ve been here before, with tech darlings AMD, Cisco, Qualcomm, and many others following the same upward trek before investors, dizzy from their valuations, lost heart. There’s no question that Nvidia is now a bell weather tech stock with its $1.2 trillion market cap.

Higher rates for longer, Fed Chair up tomorrow

Boston Fed president Susan Collins sounded a bearish note for interest rates: "I think that it's going to take some time to really be sure that we are seeing the sustained realignment of demand and supply that is needed in order to bring inflation back on a path that will get back to 2% [in] a reasonable amount of time," in an interview from Jackson Hole. "I think it's extremely likely that we will need to hold [interest rates at current levels] for a substantial amount of time," she added, "but exactly where the peak is I would not signal right at this point. We may be near [a peak], but we may need to increase a little bit further. Next up, Fed Chair Jay Powell on Friday morning for additional signals on the future path of interest rate policy.

Chicago Fed index suggests slightly above trend economic growth

• The Chicago Fed national activity index came in at 0.12 for July, indicating that the economy is now growing above trend
• The index three-month moving average for this index is now at -0.13, pointing to below trend growth

Kansas Fed survey shows unchanged economy in August

• The Kansas City Fed manufacturing index was zero for August, neither contracting or expanding month-on-month
• That's an improvement from the -11 registered for July, showing some regional resiliency
• Survey participants indicated some expectation for future activity to improve a bit going forward, reflecting some optimism
• Participants also that finished product prices are declining, while input prices for raw materials are rising, and they expect both to increase over the next six months

Jobless claims reflect continued tight jobs market

• First-time jobless claims fell to 230,000 in the week ending August 19, with a surge in claims from Hawaii due to the Lahaina fire largely offset by a sharp decline in claims from Ohio
• Last week’s total was down from 240,00 claims the previous week
• The four-week moving average rose modestly to 236,750 claims, up from 234,500 the previous week
• Continuing claims for the week ending August 12 dropped by 9,000 to 1.702 million, while the four-week moving average fell by 5,750 to 1.697 million
• The jobs market continues to be tight, with no sign of layoffs or higher jobless claims

Core durable goods orders better than expected

• Durable goods orders fell by 5.2% month-on-month in July, worse than the expected 4.0% decline, while June was reduced to 4.4% growth down from the 4.7% previously reported
• Core durable goods orders minus transportation rose by 0.5% month-on-month in July, better than the expected 0.2%, while June revised to reflect a 0.4% decline from the 0.2% previously reported
• Core capital goods orders grew 0.1% month-on-month in July, better than the anticipated flat outturn
• Durable goods orders showed good growth in July when a decline in transportation orders were removed, although they do reflect some stagnation for the business sector, which is consistent with yesterday’s data from an August survey of purchasing managers

Six new BRICS, and maybe a challenge to the US Dollar

• This week’s BRICS meeting continues to make headlines, with six new countries added to its membership: Saudi Arabia, Argentina, Iran, Egypt, Ethiopia, and the United Arab Emirates.
• Adding Saudi Arabia reflects the deterioration of US relations in the Middle East over the past couple of years
• News on how BRICS members plan to reduce use of the US dollar in trade, and what they will use instead (the Chinese Yuan?)
• The new BRICS’s New Development Bank aims to expand the portion of project financing through local currency to 30%, up from 21.5% at the end of the first quarter of this year

TODAY’S MAJOR MARKETS

Equity markets dip again, led by Nasdaq

• Equity markets fell again this morning, with the Nasdaq off 1.2%, while the Russell 2000 S&P 500 were off 0.9%
• Global markets were mixed, with the Nikkei up 0.9%, the FTSE 100 up 0.2%, and the DAX off 0.7%
• The VIX, Wall Street’s fear index, fell back to 16.1

Bond yields rise again, dollar rallies

• Bond yields rose again, with 2- and 10-year bonds back to recent highs at 5.01% and 4.23% respectively
• The dollar index strengthened again, touching 103.9, or 0.4%
• The Yen and Sterling fell 0.7% versus the dollar, while the euro was off 0.3%

Oil leads commodity markets

• Crude oil prices rose 0.3%, to $79.2 per barrel
• Gold was unchanged at $1,948 per ounce, while Silver fell 0.6% to $24.2 per ounce

• Grain and oilseed markets drifted in an August malaise, lacking a reason to rally, while reluctant to add to recent losses
• Soybeans have a bit of a firmer tone to them, while Chicago corn and wheat prices are the weakest

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com 

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com