North American Morning Briefing: Nvidia Results to Test AI Frenzy -

MARKET WRAPS

Watch For:

New Home Sales for July; EIA Weekly Petroleum Status Report; Canada Retail Trade for June; Earnings from Nvidia, Peloton Interactive

Today’s Top Headlines/Must Reads:

– Recession Fears Have Been ‘Blown Out of the Water,’ Long-Serving Fed President Says

– Outside Funders Fuel Bankruptcy Lawsuits

– Ukraine Hatches Plan to Reopen Black Sea Grain Route, Defying Russian Blockade

Follow WSJ market coverage here

Opening Call:

Stock futures rose on Wednesday ahead of data releases on economic activity and earnings from Nvidia that will be scrutinized as a bellwether for the popular artificial-intelligence trade.

Read Nvidia Earnings Will Gauge Strength of AI Boom

“Investors will focus on whether Nvidia’s Q2 sales meet the $11 billion estimate. Anything less than absolutely fantastic could trigger a sharp downside correction in Nvidia’s stock price which rallied 345% since the October dip,” Swissquote Bank said.

Pricing of Nvidia’s stock options show traders think the shares may move by roughly 10% over the course of the rest of the week.

“A jolt [of] volatility is set to be sparked by the chip giant’s numbers and outlook,” Hargreaves Lansdown said.

Most global stock indexes advanced moderately, with Europe’s Stoxx 600, Hong Kong’s Hang Seng Index and Japan’s Nikkei 225 all adding around 0.5%. While China’s Shanghai Composite Index retreated 1.3% as worries about the country’s economy weighed on sentiment.

News that eurozone economic activity contracted more than expected to a 33-month trough pushed government bond yields sharply lower. The 10-year German bund fell a tenth of a percentage point after purchasing managers’ surveys showed a bigger-than-expected contraction in business activity in August in the eurozone and Germany.

Read Eurozone Business Activity Contracts Further in August, PMIs Suggest

Pre-Market Movers

Apellis Pharmaceuticals rose 30% after it issued an update on injection kits that it supplies, and an update on rare events of retinal vasculitis reported in treatment with eye-disease drug Syfovre.

Nvidia was rising 1.8% premarket. Shares set an all-time intraday high on Tuesday but ended the session down 2.8%.

Toll Brothers reported fiscal third-quarter earnings and revenue that beat analysts’ expectations and homes delivered in the period rose 5% to 2,524 units. The stock was up 3%.

United Parcel Service rose 0.9% after members of the International Brotherhood of Teamsters approved a new five-year contract with the shipping giant.

Second-quarter sales at Urban Outfitters jumped 7.5% to a record $1.27 billion, beating analysts’ expectations of $1.25 billion. Shares rose 6%.

Forex:

In the near-term, Danske Bank Research expects the current general appreciation of the dollar to continue on the back of the better footing of the economy, as well as due to risks to the ongoing narrative of slowing inflation and soft landing.

“Any deviation from that narrative could cause risk-off events, likely benefitting the dollar in most cases, e.g. if U.S. inflation surprises to the topside during Q3.”

Danske forecast EUR/USD at 1.08 in one month and at 1.07 in three months.

Read EUR/USD to Fall to 1.03 in 12 Months, Danske Bank Says

—

Sterling and gilt yields dropped after provisional U.K. purchasing managers’ data showed contractions in both manufacturing and services sector activity in August.

“A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival,” S&P Global Market Intelligence said.

The data “will add to speculation that rates could soon peak.”

Energy:

Oil prices weakened in Europe as they faced headwinds from stronger supplies and concerns about a challenging macroeconomic backdrop.

“The rally in oil appears to have run out of steam for now,” ING said, pointing to concerns about China’s economy and fears that U.S. interest rates could remain elevated for longer than expected.

Iranian oil exports have quietly risen to their highest level since 2018, according to ING, easing tightness in the market.

Read Brief Strikes at Australian Gas Plants Would Have Short-Lived Impact

Metals:

Base metals and gold prices were higher in early trading as pressure from the dollar started to wane.

Amid thin summer markets, price action in base metals markets continues to be in thrall of macro drivers, risk appetite, U.S. dollar moves and China macro data flow,” Standard Chartered said.

It said that weak sentiment especially in China is capping prices, despite this week’s rise, adding however that prices are still below where they were at the beginning of the year.

TODAY’S TOP HEADLINES

UBS Stock Rises as Outlook for Credit Suisse Deal Improves

Investors who were startled by UBS’s hastily agreed takeover of Credit Suisse in March appear to be seeing more upside.

UBS opened new vistas in reaching the global rich by buying its crosstown rival for $3.6 billion in a Swiss government-engineered rescue. The purchase propelled it up the ranks of global wealth managers, lifting the invested assets it manages to around $5 trillion.

Bankrupt Trucker Yellow’s Real Estate Is in High Demand

The dismantling of bankrupt trucker Yellow is shaping up as a bidding battle over real estate as trucking companies look to capitalize on a rare chance to snap up coveted freight terminals across North America.

Old Dominion Freight Line last week agreed to buy Yellow’s network of about 170 truck terminals for $1.5 billion, surpassing an earlier offer of $1.3 billion from rival trucker Estes Express Lines. Both bids exceeded the value Yellow placed on its real estate in its bankruptcy filing, signaling the high value trucking companies place on the sites.

Mining Companies Want to Turn Scrap Metal Into Green-Energy Treasure

Some global mining companies are taking their hunt for materials that can power the energy transition to city scrapyards.

Rio Tinto and Glencore have signed deals this year to expand critical metals recycling, branching out from investments over the past decade that involve running giant mines in countries including the U.S., Australia and Congo.

German Business Suffered Steep Fall in Activity in August, PMIs Suggest

German business activity recorded its steepest decline in more than three years in August, as the country’s key manufacturing sector continues to struggle, data from a purchasing managers’ survey showed Wednesday.

The HCOB Flash Germany Composite PMI Output Index-which gauges activity in the manufacturing and services sectors-fell to 44.7 in August, from 48.5 in July, the lowest level since May 2020.

Investors Are Finally Making Money on Bonds and CDs. Be Prepared to Pay Taxes.

Americans are taking advantage of higher returns on their Treasury bills and other fixed-income investments. That joy might be dampened when they see their tax bills.

Over the past five weeks, investors have put a net $91.1 billion into money-market funds, according to Refinitiv Lipper data as of last Wednesday. U.S. government bonds, high-yield bonds and bond funds, and a host of other fixed-income assets have been similarly popular. I bonds were so popular last year that the Treasury Department website crashed.

Wall Street’s China Dreams Slip Away

BlackRock became the first global asset manager to operate a wholly owned mutual fund business in China in 2021, roughly a year after Chief Executive Larry Fink called the country “one of the biggest opportunities.”

Two years later, the world’s largest asset manager is struggling to compete in the market. BlackRock ranks 145th among nearly 200 Chinese mutual fund houses in terms of domestic assets under management, according to Wind, a financial data provider. Fidelity International and Neuberger Berman’s wholly owned China subsidiaries rank even lower.

Ukraine’s Reset: A Slow and Bloody Advance on Foot

ZAPORIZHZHIA, Ukraine-The Ukrainians on the front lines of the counteroffensive were crouched in the woods when they spotted the Russian patrol.

Mar-a-Lago IT Director Flipped on Trump After Switching Lawyers, Prosecutors Say

WASHINGTON-A witness against Donald Trump in the Mar-a-Lago documents case recanted false testimony and provided new information implicating the former president after dropping a lawyer paid for by Trump’s political-action committee, special counsel Jack Smith said on Tuesday night.

The allegations by Smith’s office, outlined in a 12-page court filing, were meant to highlight the Justice Department’s concerns over potential conflicts of interest arising from Trump’s financing of lawyers for a number of co-defendants and potential witnesses.

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TODAY IN CANADA

Earnings:

Nothing major scheduled

Economic Calendar (ET):

0830 Jun Retail trade

Stocks to Watch:

Humble & Fume Gets $4M Investment From Green Acre Capital Distribution Into JV

Expected Major Events for Wednesday

00:30/JPN: Aug Japan Flash Manufacturing PMI

07:15/FRA: Aug France Flash PMI

07:30/GER: Aug Germany Flash PMI