North American Morning Briefing: Nvidia Surge Boosts Nasdaq Futures

Latest News
May 25th, 2023 6:27 am EST

Market Wraps

Watch For:

1Q 2nd estimate GDP; Unemployment Insurance Weekly Claims; Weekly Export Sales; Pending Home Sales; EIA Weekly Natural Gas Storage Report; Federal Reserve Bank of Kansas City Survey of Tenth District Manufacturing; Federal Discount Window Borrowings; Fed speakers include Tom Barkin, Susan Collins; earnings from Best Buy, Costco, Gap, Medtronic, Workday

Today’s Headlines/Must Reads

– Fitch Considers U.S. Rating Downgrade as Debt Talks Drag

– Inside Wall Street’s Playbook to Prevent Debt-Ceiling Chaos

– A Cheaper Way to Bet on AI Than Investing in Nvidia

– Private-Equity Fundraising Blues Weigh Heavily on Newer Managers

Opening Call:

Futures for the Dow were under pressure early on Thursday, while Nasdaq futures–powered by optimism over a secular AI shift–surged.

“The prospect of the U.S. government being unable to meet its financial obligations continues to be a key influence on investor sentiment in global equity markets,” Hargreaves Lansdown said.

Ructions at the short end of the Treasury market–where some 1-month bill yields have broken above 7%–illustrate trader anxiety that unless Congress can reach an agreement to extend the debt-ceiling the U.S. government may technically default at the beginning of June.

Fitch late on Wednesday said it was placing Washington’s AAA credit rating on watch for a possible downgrade given what it termed the debt ceiling “brinkmanship.”

However, results and comments from Nvidia, whose stock rose 25% in premarket action, have boosted hopes that AI will deliver the next period of strong growth for a number of tech companies.

Stocks on the Move

Gains for Nvidia premarket, pushed other chip makers and AI-exposed companies higher after the company’s outlook crushed expectations due to surging demand.

The chip maker’s earnings “lived up the generative AI hype,” KeyBanc Capital Markets said, as it hiked its price target on the stock to $500 from $375. “Nvidia remains uniquely positioned to benefit from AI/machine-learning secular data-center growth.”

It was Nvidia’s second-quarter outlook that really turned heads. Read more here .

Other Stocks to Watch

American Eagle Outfitters was down 20% after it said it expected fiscal second-quarter revenue “down low-single digits to last year.”

e.l.f. Beauty posted fiscal fourth-quarter adjusted earnings and revenue that beat Wall Street expectations and provided strong guidance, showing no sign of slowing spending among its consumers. The stock jumped 11.3.

Nutanix said it expected fiscal fourth-quarter revenue of $470 million to $480 million in revenue, higher than analysts’ estimates of $452 million. Shares rose 10% in premarket trading.

Snowflake was down 14% after it said it expected fiscal second-quarter product revenue of $620 million to $625 million, below Wall Street estimates of $647 million.

Shares of Splunk rose 9.1% after it reported an adjusted profit in the fiscal first quarter of 18 cents a share, well ahead of the loss of 13 cents expected by Wall Street, and revenue that rose 11% from a year earlier.

UiPath declined 9.4% in premarket trading after it issued fiscal second-quarter revenue guidance of between $279 million and $284 million vs. analysts expectations of $284 million.

Forex:

The dollar edged higher as a lack of progress in the debt ceiling talks pushed investors towards safe-haven assets, according to UniCredit Research.

The currency gained despite Fitch putting the U.S. on negative watch.

“USD/JPY hitting new year-to-date highs close to 140 is further proof of the current strength of the greenback [dollar],” UniCredit said.

ING said the Federal Reserve’s meeting minutes have firmed expectations for another interest-rate rise this summer, supporting the dollar.

“There were very few crumbs of comfort for dollar bears in the minutes, apart from some comments that it was uncertain what additional tightening would be necessary,” ING said.

The minutes were “pretty hawkish” in signalling another rate rise as policymakers acknowledged inflation remains unacceptably high and is slowing less than expected, ING said. That leaves the market “well on its way” to pricing another 25 basis points rate rise by July.

EUR/USD fell to a two-month low of 1.0716 after data showed Germany entered a technical recession in the first quarter of this year, with GDP downwardly revised to a 0.3% fall from flat growth previously. Analysts in a WSJ survey expected no change from the previous estimate. Read more here. https://newsplus.wsj.com/article/wsj/WP-WSJ-0000917733

Sterling’s positive reaction to Wednesday’s higher-than-expected U.K. inflation data was brief given concerns that the Bank of England will struggle to contain price pressures due to factors outside its control, Commerzbank said.

Inflation is “eroding the domestic purchasing power of the British currency at a high rate-which is not positive for its purchasing power on the FX market,” Commerzbank said.

The lack of cheap labor from Europe and the rising cost of trading goods with Europe due to new customs and regulatory borders are among the factors fuelling inflation, it added.

Energy:

Oil prices edged lower in Europe but held onto the bulk of gains made this week following bullish inventory data and a warning from the Saudi Arabia energy minister.

“These comments from the Saudi energy minister have likely increased market expectations that the group may reduce output further,” ING said.

Metals:

Base metals were slightly firmer in London, with gold prices weaker, as worries over the U.S. debt ceiling and uncertainty about the Fed’s next move on rates, dominating markets.

“[The] Fed meeting minutes were hawkish,” Peak Trading Research said. “Fed members will remain data-driven and won’t commit to pausing interest rate hikes.”

Peak added that the hawkish tone is good for the dollar and bad for commodity markets.

Today’s Top Headlines

Nvidia Earnings Spark Huge AI Stock Rally. The Hype Keeps Building.

Nvidia stock soared early Thursday, pushing other chip makers and AI-exposed companies higher after the company’s outlook crushed expectations due to surging demand.

The chip maker’s earnings “lived up the generative AI hype,” KeyBanc Capital Markets analysts noted, as they hiked their price target on the stock to $500 from $375. “Nvidia remains uniquely positioned to benefit from AI/machine-learning secular data-center growth,” they added.

A Cheaper Way to Bet on AI Than Investing in Nvidia

In a gold rush, sell picks and shovels. If you really want to play three-dimensional chess, buy the company that makes those picks and shovels.

Chip giant Nvidia is getting a major boost from the artificial-intelligence boom. Every tech firm from Microsoft to Google has rushed to join the frenzy, sparked by the success of ChatGPT. But Taiwan Semiconductor Manufacturing Co., or TSMC, which makes Nvidia’s AI chips, could be another significant beneficiary.

Elon Musk’s Twitter Event With Ron DeSantis Hits Technical Issues

Twitter suffered apparent technical problems at a high-profile moment Wednesday, during an event where owner Elon Musk planned to host Republican Ron DeSantis’s presidential campaign announcement on the platform.

The announcement was scheduled to take place using Twitter Spaces, a live audio feature. But the event quickly faltered, with many users saying the technology wasn’t working for them and that the audio was going in and out.

Target Lands in Culture-War Crosshairs Over Pride Month

Target is facing growing criticism after it stopped selling certain items related to Gay Pride Month that offended some customers and social media commenters, a decision that prompted others to say the retailer had caved in to pressure from anti-LGBT voices.

The controversy stemmed from the recent release of clothing, d├ęcor and other Pride items, which were similar to products Target has sold for the occasion for more than a decade. After this year’s release, customers knocked down displays, threatened store employees and put posts on social media with video from inside stores.

Payments Processor Plastiq Files for Bankruptcy After Aborted SPAC Deal

Payments processor Plastiq has filed for bankruptcy, less than a year after an aborted merger with a special-purpose acquisition company and weeks after Silicon Valley Bank’s collapse temporarily halted its operations.

San Francisco-based Plastiq sought protection from creditors Wednesday with a proposed deal to be acquired by publicly traded payments business Priority Technology Holdings. Since its 2012 founding in a Boston apartment until 2021, Plastiq raised $142 million in funding and was once valued at $550 million, according to a court filing by Chief Restructuring Officer Vladimir Kasparov.

More Airlines Are Encountering Near Collisions-and No One Knows Why

Riding a 14-year streak without a fatal major airline crash, the skies over the U.S. have never seemed safer. That wasn’t the takeaway from an unusual meeting of senior aviation-industry officials and regulators in March.

Convened by the Federal Aviation Administration and held at an office outside Washington, D.C., the meeting focused on a string of serious incidents at U.S. airports this year. The most alarming: a near-collision on a foggy day in early February, when a FedEx cargo plane nearly landed on top of a Southwest Airlines jet taking off from the Austin, Texas, airport, risking the lives of 131 passengers and crew. In January, a pilot’s wrong turn on a New York runway almost led to a collision.

Leon Black Wins Dismissal of Rape Suit

A judge dismissed a lawsuit brought against Apollo Global Management co-founder and ex-CEO Leon Black by a woman who accused him of rape and defamation, likely bringing to an end a two-year legal saga.

In a ruling Wednesday, New York State Supreme Court Justice David B. Cohen sided with Black in determining that Guzel Ganieva’s claims were invalid, largely because she signed a nondisclosure agreement with Black in 2015 under which she was paid about $9.5 million over the next six years.

Fitch Considers U.S. Rating Downgrade as Debt Talks Drag

Fitch Ratings is reviewing whether the U.S. should retain its top credit rating as the White House and Republicans struggle to reach an agreement on raising the debt limit.

Fitch said Wednesday evening it had placed the U.S. triple-A credit rating on “rating watch negative.” While the ratings firm said it still expects Democrats and Republicans to reach an agreement on raising the debt limit, it said there was a greater risk it could fail to do so in time. Treasury Secretary Janet Yellen has said the U.S. could begin missing payments as soon as June 1.

Inside Wall Street’s Playbook to Prevent Debt-Ceiling Chaos

Wall Street is breaking out its doomsday playbook for how to survive a U.S. default.

The industry’s primary goal: keep the financial markets functioning. Many fear everything from computer glitches to cascading panic if the U.S. misses payments on Treasurys, which are a bedrock of trading and usually considered almost as safe as cash.

McCarthy addresses debt-ceiling angst: ‘I would not, if I was in the markets, be afraid of anything’

House Speaker Kevin McCarthy on Wednesday made an effort to address concerns among investors that a divided Washington won’t be able to make a deal on a debt-ceiling increase and thereby avoid a market-shaking default.

“We are working night and day. I would not, if I was in the markets, be afraid of anything in this process,” the California Republican said during a Fox Business interview after the market’s close.

Private-Equity Fundraising Blues Weigh Heavily on Newer Managers

A pullback by private-equity investors is hitting younger firms harder than their longer-tenured peers.

Raising money has always been hard for fund managers with shorter track records, especially as investors have migrated toward larger managers in recent years.

Germany Entered Recession After 1Q GDP Estimate Revised Down

The German economy entered a recession, after it contracted by more than in initial estimates in the first quarter, as household expenditure was squeezed by high inflation.

Germany’s gross domestic product contracted 0.3% compared with the previous three-month period, according to a second estimate released Thursday by German statistics office Destatis, lower than the first estimate, which showed the economy flatlined.

Italy’s Market Likes the New Prime Minister. She’s Showing Her Moderate Side.

Giorgia Meloni wasn’t elected to comfort the afflicted.

The Italian prime minister, who swapped her trademark white suit for jeans this past week to wade through flooded villages in the Emilia-Romagna region, swept to power last autumn on a right-populist platform of containing immigration, slashing taxes, and sticking it to the overbearing eurocrats in Brussels.

Ron DeSantis Makes Case to Be Trump’s Successor Atop GOP With 2024 Bid

After seven years of party domination by Donald Trump, Florida Gov. Ron DeSantis is ready to present himself to Republicans as the natural successor to the former president’s movement and the best candidate to move the GOP beyond a “culture of losing.”

But a planned campaign announcement on Twitter Spaces, an unorthodox choice featuring a conversation with DeSantis and Elon Musk, got off to a messy start, with the production marred by technical issues, including audio that repeatedly cut out.

Texas Attorney General Interfered With FBI Probe, Investigators Say

AUSTIN, Texas-Attorney General Ken Paxton may have committed multiple crimes as he attempted to use his state office to aid a political donor, according to investigators working for the Texas Legislature.

Investigators found the top lawyer of the nation’s second-largest state had sought to interfere in a Federal Bureau of Investigation probe into Austin real-estate investor Nate Paul, a friend of Paxton’s who donated $25,000 to him, and otherwise interjected himself in Paul’s legal dealings.