Extraordinary rally rips through all markets

After an unexpectedly bold move from the Bank of Japan, the Federal Reserve indicating that US rates are about to come down, and an explosive rise in US megacap stocks on Wednesday, investors may be in need of some respite on Thursday.

Good luck with that.

Aside from the continuing ripples across all asset classes from the BOJ, Fed and tech boom, a wave of manufacturing PMIs from China and across Asia lands and investors are bracing for more Big Tech earnings and a possible Bank of England rate cut.

Thursday is also the first trading day of the month, and investors may want to put capital to work. Wednesday’s surge in risk appetite, especially in chip stocks, may fuel those spirits.

Investors usually baulk at volatility but appear to be embracing it right now. Look at Nvidia shares – down 7% on Tuesday then soaring 13% on Wednesday to bring its market cap back above USD 3 trillion.

That’s a one-day increase in market value of over USD 350 billion.

Wednesday’s action across all markets may have been tied to position adjustments on the last trading day of the month, but was nevertheless extraordinary.

The Nasdaq had its best day since February last year, geopolitical tensions helped fuel a 5% rise in WTI crude oil for its best day this year, and palladium was the pick of the bunch in a buoyant precious metals complex, rising 4%.

US bond yields fell to their lowest since February or March, depending on what part of the curve, while the dollar’s slump against a rampant yen dragged down its broader value against a range of G10 and emerging currencies.

The South Korean won posted its biggest rise this year, aided by strong Samsung earnings and a chip-fueled stock market rally, while the Thai baht hit a four-month high.

That momentum will likely extend into Asia on Thursday, although the BOJ’s hawkish stance and Fed’s more balanced posture – certainly relative to some recent soundings from key former Fed officials – may put the brakes on as the day progresses.

The yen and Nikkei could be most primed for reversal, having rallied strongly on Wednesday. The yen jumped 2% to break through 150.00 per dollar for the first time since March.

On the data front, the most market-sensitive releases will probably be manufacturing sector purchasing managers index reports from China and across Asia. China’s ‘official’ PMIs on Wednesday showed that manufacturing sector activity continued to shrink in July while service sector growth slowed.

Here are key developments that could provide more direction to markets on Thursday:

– China, Asia manufacturing PMIs (July)

– Indonesia inflation (July)

– South Korea trade (July)

(Reporting by Jamie McGeever; Editing by Bill Berkrot)

S&P 500, Nasdaq boosted by chip rally, Fed rate cut signals

NEW YORK – The S&P 500 and Nasdaq scored their biggest daily percentage gains since Feb. 22 and the Dow rose on Wednesday as chip stocks rallied and the Federal Reserve kept US interest rates unchanged while signaling possible easing in September if inflation cools.

Seven out of the 11 S&P 500 sectors advanced, led by technology and consumer discretionary stocks. Healthcare, real estate, and consumer staples were the weakest.

The Fed kept its benchmark overnight interest rate in the 5.25%-5.50% range as it ended its two-day policymaking meeting on Wednesday, but opened the door to easing in September, seven weeks shy of the November US elections. The benchmark US 10-year note yield fell 9.8 basis points to 4.043%.

The Dow Jones Industrial Average rose 0.24% to 40,842.79, the S&P 500 gained 1.58% to 5,522.30 and the Nasdaq Composite advanced 2.64% to 17,599.40.

“It was the worst kept secret on the planet that the Fed was not going to cut in July,” said Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, Oklahoma. “The Fed is going to have its day in the sun in September with a 25 or 50 basis point cut, but I would not be surprised if that is already priced into stocks.”

During his press conference, Fed Chair Jerome Powell said policymakers discussed the case for cutting rates, but a “strong majority” agreed that now was not the appropriate time.

“The statement didn’t move the needle at all,” said Mark Malek, chief investment officer at Siebert Next in New York, referring to the Fed’s official statement. “But listening to him speak, it’s clear they’re all locked and loaded for September rate cut and they’re going to maintain their optionality.”

Data released early Wednesday showed July US private payrolls increased far less than expected, indicating an easing in persistent labor market tightness.

For the month, the S&P 500 climbed 1.1%, the Dow jumped 4.4%, while the Nasdaq lost 0.8%.

Nvidia jumped nearly 13%, helped by a rosy 2024 sales forecast for artificial intelligence chips by peer Advanced Micro Devices, whose shares also gained 4.3%. The Philadelphia SE Semiconductor index rose finished up nearly 7%.

US President Joe Biden’s administration plans to unveil a new rule next month that will expand US powers to stop exports of semiconductor manufacturing equipment from some foreign countries to Chinese chipmakers, two sources familiar with the matter told Reuters.

Microsoft dipped 1% after it posted massive AI-related expenses. Meta jumped 5% after the bell as its earnings beat market expectations. Apple and Amazon.com, which will report earnings on Thursday, closed up 1.5% and 2.9%, respectively.

Advancing issues outnumbered decliners by a 2.23-to-1 ratio on the NYSE. On the Nasdaq, 2,603 stocks rose and 1,648 fell as advancing issues outnumbered decliners by 1.58-to-1.

The S&P 500 posted 68 new 52-week highs and one new low while the Nasdaq Composite recorded 168 new highs and 104 new lows.

Total volume on US exchanges was 13.3 billion, compared with the 20-day moving average of 13.27 billion.

(Reporting by Chibuike Oguh in New York; Additional reporting by Noel Randewich in Oakland, California; Editing by Richard Chang)

US yields fall after Fed keeps rates steady, signals potential cut

NEW YORK – US Treasury yields were mostly lower on Wednesday, with the benchmark 10-year note yield on track for its biggest drop in two weeks, after the Federal Reserve kept interest rates at their current levels, as was widely expected.

Yields initially moved higher after the policy statement in which the central bank held rates
steady, but signaled the door was open to reduce borrowing costs as soon as its next meeting in September as inflation draws closer to its 2% target rate.

But yields turned lower as Chair Jerome Powell spoke after the announcement and noted that central bank officials had a “real discussion” about cutting rates at the July meeting but a strong majority believed it was not the appropriate time.

“As expected, the Federal Open Market Committee decided to keep its key interest rate, the federal funds rate, unchanged,” said Travis Keshemberg, Senior Portfolio Manager for the systematic edge multi-asset team at Allspring Global Investments in San Francisco.

“We believe the Federal Reserve will cut rates for the first time this cycle at its September meeting as long as incoming data continue to align with our expectations.”

Yields were lower before the Fed statement after economic data indicated a slowing in the labor market and wage growth indicating the central bank has some cushion to cut rates this year.

The ADP National Employment Report showed private payrolls rose by 122,000 jobs this month, short of the 150,000 of economists polled by Reuters, after advancing by an upwardly revised 155,000 in June.

In addition, the employment cost index (ECI), the broadest measure of labor costs, increased 0.9% last quarter, below the 1.0% estimate, after rising by an unrevised 1.2% in the first quarter, another sign inflation is cooling.

Recent inflation data such as the consumer price index (CPI) has fueled expectations recently the Fed will be in a position to cut rates this year.

The yield on the benchmark US 10-year Treasury note fell 6.3 basis points, its fifth straight session of declines, to 4.078% after dropping to 4.074%, its lowest level since March 11.

The reports were on the heels of job openings data on Tuesday that suggested a gradual slowing in the labor market and ahead of the key government payrolls report on Friday.

The yield on the 30-year bond was also lower for a fifth straight session and was last down 4.9 basis points to 4.35% after hitting a six-week low of 4.342%.

Treasury said earlier on Wednesday that it does not expect to increase auction sizes for US notes and bonds over the next several quarters, as it announced a total refunding of USD 125 billion for the August to October quarter.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 21.4 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, dropped 6.9 basis points to 4.29% after falling to 4.284%, its lowest since February 2.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.145% after closing at 2.133% on July 30.

The 10-year TIPS breakeven rate was last at 2.235%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski and Chizu Nomiyama)

Gold climbs over 1% after Fed’s Powell hints at early rate cut

Gold prices extended gains on Wednesday after Federal Reserve Chair Jerome Powell hinted that an interest rate cut could be on the table as early as September if inflation stays in line with expectations.

Spot gold was up 1.2% at USD 2,437.39 per ounce as of 3:21 p.m. ET (1921 GMT) and logged its biggest monthly rise since March, gaining over 4%. US gold futures settled 0.9% higher at USD 2,473.

Powell, speaking at a press conference following the Fed’s decision to leave its benchmark interest rate unchanged, kindled investors’ hopes for a September rate cut by stating that policymakers are gaining more confidence that inflation is steadily approaching the 2% target.

“Gold and silver are rallying as Chair Powell’s comments indicate a September rate cut is likely,” said Tai Wong, a New York-based independent metals trader.

“However, he did effectively close the door on a 50bps move. It remains to be seen if gold can make new all-time highs given the Fed has just met recently expanded expectations.”

Support for the safe-haven asset strengthened amid the threat of conflict escalation in the Middle East after Hamas leader Ismail Haniyeh was assassinated early on Wednesday in Iran spurring a region already shaken by the war in Gaza and a deepening conflict in Lebanon.

Fed cuts rates coupled with geopolitical risk in the Middle East could potentially push gold to up to USD 2700 an ounce, said Bob Haberkorn, senior market strategist at RJO Futures.

The US dollar slightly pared losses after the Federal Reserve rate decision, while the benchmark US 10-year Treasury yields moved lower.

Spot silver was up 1.6% at USD 28.85 per ounce. Platinum gained 2.1% to USD 979.05 and palladium climbed 4.6% to USD 928.50. All three metals were headed for monthly declines.

(Reporting by Anjana Anil and Anushree Mukherjee in Bengaluru; Editing by Tasim Zahid)

Nvidia shares surge 13%, lift market value a record USD 330 billion

Nvidia added about USD 330 billion in stock market value on Wednesday, a record one-day gain for any company on Wall Street after Microsoft and Advanced Micro Devices reignited the AI rally.

Nvidia surged nearly 13% on expectations its top-of-the-line processors will remain in tight demand after Microsoft late on Tuesday reported a
massive increase in artificial intelligence expenditures.

Also lifting Nvidia and other chipmakers, Advanced Micro Devices ratcheted up its 2024 forecast for its AI chip sales. Microsoft fell 1.1%.

“Microsoft reported some deceleration in its core cloud business, but a huge increase in capex. That represents a transfer of wealth from Microsoft shareholders to Nvidia shareholders,” said Gil Luria, senior software analyst at D.A. Davidson.

Nvidia’s surge in stock market value shattered Wall Street’s previous record, which Nvidia also set on Feb. 22 with a USD 277 billion gain.

Nvidia is now valued at USD 2.88 trillion, making it Wall Street’s third most valuable company, behind Apple and Microsoft. Nvidia’s highest-ever closing stock market value was USD 3.34 trillion on June 18, according to LSEG.

The PHLX chip index surged 7% in its biggest one-day gain since 2022. The index sold off for much of July over worries that a rally fueled by optimism about AI had become overextended. It remains down 11% from its record high close on July 10.

In its report, Microsoft said revenue from its Intelligent Cloud unit – home to the Azure cloud-computing platform – jumped 19% to USD 28.5 billion, but missed analysts’ estimates of USD 28.7 billion.

“Since Microsoft makes up approximately 20% of demand for Nvidia’s highest quality AI chips, increasing capex spend at Microsoft is good news for Nvidia’s bottom line,” said Kathleen Brooks, research director at XTB.

“Since Nvidia remains the leading hardware producer for AI technology, increasing capex spend by its biggest customers bodes well for Nvidia’s results.”

Its capital expenditure, including finance leases, surged 78% in the quarter to USD 19 billion, with Microsoft saying it needs to expand its global network of data centers and overcome capacity constraints to meet AI demand.

The growing cost of the AI race shook investor confidence after Alphabet last week reported a bigger-than-expected rise in capital expenditure to support its generative AI technology.

Technology companies have faced high expectations going into this earnings season. Analysts on average see technology companies in the S&P 500 growing their aggregated earnings by almost 10%, according to LSEG data.

AMD surged more than 4% after it forecast third-quarter revenue above market estimates on Tuesday, banking on demand for its AI chips staying strong.

Broadcom, which also sells AI-related chips, rallied 12%.

“We’re still in a tough macro environment. AI is absolutely real, but requires a lot of investment and that is visible in the capex numbers,” said Rishi Jaluria, an analyst at RBC Capital Markets.

(Reporting by Noel Randewich in San Francisco; Additional reporting by Anna Tong in San Francisco and Aditya Soni, Yuvraj Malik, Kanchana Chakravarty, and Zaheer Kachwala in Bengaluru; Editing by David Gregorio, Arun Koyyur, and Marguerita Choy)

Japan’s 2-year bond yield jumps ahead of BOJ decision

TOKYO – Japan’s 2-year government bond yield jumped on Wednesday as the market awaited the Bank of Japan (BOJ) to conclude a policy meeting later in the day.

The 2-year JGB yield rose 4 basis points (bps) to 0.44%, its highest since April 2009.

(Reporting by Junko Fujita; Editing by Tom Hogue)

Gold climbs on rate cut hopes as Fed meeting looms

July 30 – Gold prices gained around 1% on Tuesday as investors remained optimistic that the US Federal Reserve could drop clues about lowering interest rates in September at the end of the policy meeting this week.

Spot gold was up 0.8% at USD 2,403.47 per ounce as of 1747 GMT. US gold futures settled 1% higher at USD 2,451.9.

“Europe is showing some more cracks within its economy and they are set to cut rates in September and the US is expected to cut rates as well, which has supported the gold market,” said Phillip Streible, chief market strategist at Blue Line Futures.

At the conclusion of its two-day meeting on Wednesday, the Fed is expected to maintain current interest but may signal potential policy easing as soon as September.

The US rate futures market has fully priced in a rate cut in September. Lower interest rates reduce the opportunity cost of holding the non-yielding bullion.

Traders are also awaiting a series of US employment data scheduled to be released this week, including the pivotal non-farm payrolls report due on Friday.

US job openings fell marginally in June and data for the prior month was revised higher, pointing to continued labor resilience that is underpinning the economy.

“Some short-term disappointment cannot be ruled out (in gold), but overall the direction towards higher prices in the months and quarters ahead remains,” said Ole Hansen, head of commodity strategy at Saxo Bank in a note.

Meanwhile, India’s gold demand in the June quarter fell 5% from a year earlier, but consumption in the second half of 2024 should improve due to a correction in local price following a steep reduction in import taxes, the World Gold Council said.

Among other metals, spot silver rose 1.6% to USD 28.31 per ounce, platinum gained 1.7% to USD 965.00 and palladium fell 1.4% to USD 890.93.

(Reporting by Rahul Paswan and Brijesh Patel in Bengaluru; editing by David Evans and Alan Barona)

The biggest day for markets this year

July 31 – Asian assets have rarely been exposed to as many market-moving triggers in one day as they will be on Wednesday, with the Bank of Japan rate decision and China’s purchasing managers index reports topping a packed policy, data, and corporate calendar.

Investors are also bracing for second-quarter GDP estimates from Taiwan and Hong Kong, inflation numbers from Australia, and earnings from corporate heavyweights including HSBC, Samsung, Panasonic, Mitzuho, and Sumitomo.

All that follows heavy after-the-bell selling of US Big Tech on Tuesday after Microsoft warned of slow returns on AI technology spending, and comes ahead of the Federal Reserve’s rate decision on Wednesday.

With so much event risk looming – it’s month-end too – an escalation in Middle East tensions could not have come at a more sensitive time for markets. World stocks, the S&P 500, Nasdaq, and US Treasury yields all slid on Tuesday.

The dollar on Tuesday hit a three-week high on an index basis, nudged above 155.00 yen, and was fixed at its strongest level since November against the Chinese yuan. But it ended US trading on the defensive.

The BOJ’s policy decision is on a knife-edge, at least according to money market pricing, which indicates a 55% likelihood the BOJ will raise rates by 10 basis points. That’s down from a 60% probability earlier this week.

If the central bank stands pat and delivers a dovish message, the dollar could head back up to intervention territory around 160.00 yen. A hike and hawkish stance could bring 150.00 into view.

While policymakers are expected to outline plans to taper the bank’s huge bond-buying stimulus, a rate cut is a close call. They may wait and see what the Fed does later on Wednesday, making a move in September more likely.

While the Bank of Japan deliberates how it will tighten policy, the People’s Bank of China is going the other way, and PMIs from Beijing on Wednesday will give the first glimpse of how the world’s second-largest economy performed in July.

Expectations are being kept low – the manufacturing PMI is forecast at 49.3, according to a Reuters poll, down from June’s 49.5 and marking the third month of contraction in a row.

More stimulus is needed if 2024 GDP growth is to reach Beijing’s 5% target, especially with US tariffs coming down the pike. Chinese leaders on Tuesday signaled that stimulus will be directed at consumers, deviating from their usual playbook of pouring funds into infrastructure projects.

Elsewhere, Australian inflation in June is expected to come in at 3.8%, up from 3.6% in May, while annual GDP growth in Taiwan is seen slowing to 4.8% in the April-June period from 6.6% in Q1.

Here are key developments that could provide more direction to markets on Wednesday:

– Bank of Japan policy decision

– China ‘official’ PMIs (July)

– Taiwan GDP (Q2)

(Reporting by Jamie McGeever)

Bond investors see ‘dovish hold’ from Fed, pile on yield curve steepeners

NEW YORK, July 30 (Reuters) – Bond investors, expecting the Federal Reserve to hold interest rates steady this week but signal that rate cuts are imminent, are betting that the US Treasury yield curve will become less inverted and eventually return to a normal positive slope.

The strategy involves bullish bets on short-dated Treasuries and reducing longer-dated exposure, a trade referred to as a “steepener” which pushes yields on longer-dated Treasuries higher than short-term maturities. Investors are compensated with a higher yield for taking risks over a longer period.

The widely watched two-year/10-year yield curve has been inverted for two years, the longest inversion in history, with the gap in yield at minus 22 basis points (bps).

With the focus on the yield curve, the Federal Reserve is widely anticipated on Wednesday, at the end of its two-day policy meeting, to keep its benchmark overnight rate in the 5.25%-5.50% range for an eighth straight meeting. Investors expect a “dovish hold” from Fed Chair Jerome Powell’s press conference at the end of the meeting, in which he is likely to signal that rates will be lowered as soon as September for the first time in more than four years.

Powell also has the Jackson Hole gathering of central bankers in late August to prepare the market for a rate cut. By then more data on inflation and this Friday’s July employment report could give policymakers the confidence they seek.

The rate futures market has priced in about 68 bps of total cuts this year starting in September, LSEG calculations showed a big jump from 30 bps just before the June meeting. Roughly three more cuts of 25 bps each are expected by June 2025.

In the Fed’s June rate forecasts the central bank had penciled in just one cut in 2024. Easing US inflation and a gradually slackening labor market have prompted a shift in rate expectations.

“The yield curve moved a significant amount in the last six weeks, but we are at these levels in October last year and it still comes down to an inverted curve, which is not normal,” said Greg Wilensky, head of US fixed income at Janus Henderson Investors, with assets under management of USD 352.6 billion.

“We’re going into a situation where the curve moves to a normal positive slope. There is plenty of room for it to go.”

BULL STEEPENERS

The spread between two-year and 10-year yields has narrowed by 30.4 bps since late June. The curve the last few weeks has mainly seen “bull steepeners,” where short-term yields have fallen more sharply than longer-dated ones, a typical prelude to the Fed’s starting an easing cycle.

Investors had bet aggressively in January on a steeper yield curve, as the markets priced in multiple rate cuts for 2024 after a dovish pivot from the Fed in December.

But those bets unraveled and the curve flattened even more as short-term yields surged above long-term ones amid a surprisingly durable economy and pesky inflation.

Going into this week’s Fed meeting, investors in the futures market sharply increased net long bets on short-dated Treasuries, such as US two-year notes, while net long positions on longer maturities have not risen as much or have declined. That mirrored bull steepeners that have been in place the last few weeks.

Friday’s data from the Commodity Futures Trading Commission showed asset managers last week increased their net long position on US two year notes to a record high.

Asset managers have also remained net long on US 5-year note futures, hitting an all-time peak in mid-July before slipping a bit last week,

“There is an urgency to get into the short end of the curve before yields start to fall in a more pronounced way,” said Chip Hughey, managing director of fixed income at Truist Advisory Services in Richmond, Virginia.

Net longs from institutional investors on US 10-year futures were largely flat last week.

“If the Fed starts its cutting cycle without a recession, buying any duration, or any longer bonds, won’t necessarily give you the same impact of being on the right part of the curve, like the 2s to 7s,” said Mike Sanders, portfolio manager and head of fixed income at Madison Investments in Madison, Wisconsin.

The firm, with USD 25 billion in assets, is currently overweight US three-year to seven-year Treasuries, reflecting expectations their yields will fall.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alden Bentley and Leslie Adler)

The waiting game ahead of Fed, BOJ

Stocks around the world on Monday continued from where they left off on Friday, stemming the tide of last week’s selling as investors squared positions ahead of a wave of market-moving economic data, policy decisions, and earnings reports later in the week.

There doesn’t appear to be much on the immediate horizon to give Asian assets a strong steer on Tuesday – Wall Street was mixed, the dollar climbed and Treasury yields dipped – suggesting regional markets will be relatively well-supported but range-bound.

Japanese labor market data, housing and retail trade figures from Australia, and a sprinkling of earnings reports, including Standard Chartered, Nomura Holdings, and Samsung are the main regional events that investors will be looking out for.

Asian equities appear to have stopped the recent rot, with some benchmark indices on Monday chalking up their best day in two weeks – the MSCI Asia ex-Japan index rose 0.7%, the Hang Seng rose 1.3%, and Japan’s Nikkei jumped 2.1%.

That was the Nikkei’s best day since April – an impressive bounce from a three-month low, but it did follow eight straight down days, its worst run in almost three years.

Can Asia take heart from the US and world stocks’ performance on Monday?

The recent rotation out of US Big Tech into small caps stalled, with the Russell 2000 heavily underperforming tech and the Nasdaq more broadly. The S&P 500 barely rose 0.1% – a tiny gain, but the first time in two weeks that the index has risen two days in a row.

The Bank of Japan’s policy decision on Wednesday looms larger over Japanese assets. Sources have told Reuters that a rate hike will be discussed and policymakers may also unveil a plan to roughly halve its bond purchases in the coming years.

Money market pricing on the BOJ’s move on rates still leans toward a 10-basis point hike but tightening will be slow – barely 20 bps of rate hikes are priced in by year-end.

If policy ‘normalization’ in Japan is that gradual, the yen will struggle to get much upward traction from Tokyo. It might get more of a boost from the US Federal Reserve and other central banks cutting rates more aggressively than markets currently expect.

US rates futures traders are betting that the Fed will stand pat on Wednesday, begin easing in September, and cut rates by around 65 bps before the year is out. The Bank of England meets on Thursday, and could cut rates.

The dollar rose to a two-week high against a basket of major currencies on Monday, nudging through 154.00 yen as Wednesday’s Fed and BOJ meetings draw closer. Asian FX markets are mostly subdued, while China’s yuan is also taking a breather.

Here are key developments that could provide more direction to markets on Tuesday:

– Japan unemployment rate (June)

– Australia building approvals (June)

– Samsung earnings (Q2)

(Reporting by Jamie McGeever)

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