Wall Street ‘fear gauge’ jumps to three-month high as stocks resume slide

NEW YORK – Wall Street’s most watched gauge of investor anxiety jumped to a more than three-month high on Thursday as US stocks fell sharply after a round of data on Thursday spurred concerns the economy may be slowing faster than anticipated.

The Cboe Volatility Index hit 19.48, its highest since April 19, before paring gains to finish at 18.59. The jump came as the S&P 500 fell nearly 1.4%. A 2.3% drop in the tech-heavy Nasdaq Composite Index, meanwhile, brought it within two percentage points of a 10% decline from a record high reached last month.

The options-based VIX index, which has been largely subdued with an average reading of 13.96 so far this year, has perked up in recent weeks as investors have grown increasingly apprehensive about the outlook for corporate earnings and economic growth.

The concerns, which have pulled the S&P 500 Index down about 4% from its July 16 record closing high of 5,667.2, have also spurred a jump in trading in VIX options. The index is up 14% year-to-date.

On Thursday, some 1.5 million VIX options contracts changed hands, nearly twice the average daily volume for the options, according to Trade Alert data.

Thursday’s jump brought the index closer to its long-term average of 19.5.

Meanwhile, the VVIX index – a gauge of expected swings in the fear index – closed up 16.93 points at 111.18, signaling investors expect sharp near-term swings in the VIX.

(Reporting by Saqib Iqbal Ahmed; Editing by Marguerita Choy and Stephen Coates)

Tech giants faced major market cap drop in July on earnings worries

Global mega tech companies’ market capitalization dropped sharply in July, in response to disappointing quarterly results and concerns over high valuations, prompting investors to shift their focus away from the AI sector.

In the first half of 2024, investors pushed tech stocks higher on expectations that AI advancements would boost earnings. But the second-quarter earnings reports from tech companies have raised concerns that investment in AI infrastructure has led to ballooning costs with only modest gains.

Microsoft reported revenue that fell short of analysts’ expectations, while Tesla reported its lowest profit margin in more than five years. Additionally, Google’s parent company, Alphabet, experienced a slowdown in advertising sales at YouTube, raising concerns about Alphabet’s ability to expand its margins.

Microsoft and Alphabet’s market capitalizations fell by about 6% to USD 3.1 trillion and USD 2.1 trillion, respectively, at the end of July, based on LSEG data.

Slowing profits among its major customers dampened growth expectations for chipmaker Nvidia, leading to a 5.2% reduction in its market cap to USD 2.8 trillion. This downturn also impacted its Taiwanese production partner TSMC, the world’s largest third-party microchip foundry, which experienced a 4.3% decrease in market cap to USD 737.8 billion at the end of July.

Bucking the trend, Apple’s market cap surged 5.4% to USD 3.4 trillion at the end of July, fuelled by optimism that its new AI initiative, Apple Intelligence, would boost sales and encourage customers to upgrade their devices to utilize the new technology.

But then 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.

Outside the tech sector, drug maker Eli Lilly’s market capitalization fell 11.2% to USD 764.3 billion, amid concerns about its lead in the anti-obesity market being challenged by a promising experimental pill from rival Roche.

Despite weak results, Tesla’s market cap increased by 17.2% to USD 740.1 billion, buoyed by optimism about its future growth prospects. Morgan Stanley named Tesla the most valuable automaker its “top pick” in the US automotive industry, replacing Ford , and predicted that Tesla’s energy business could eventually surpass its auto business in value.

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru. Editing by Jane Merriman)

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)

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