Just as Nvidia expected, treasuries soak up fresh flood of Reuters

A look at the day ahead in US and global markets from Mike Dolan

Nvidia’s (NASDAQ: ) post-bell earnings update on Wednesday keeps stock markets everywhere in a holding pattern, while U.S. Treasury markets appear to be absorbing the latest flood of debt sales quite comfortably.

Earnings expectations from the world’s most dominant artificial intelligence chipmaker have soaked up all the oxygen in the first part of the week, so much is the $3.1 trillion company’s influence on broader stock indexes now.

Stock options traders expect Nvidia’s report to cause more than $300 billion of swing in its stock over the next day. Prices are anticipating a nearly 10% move in the stock on Thursday — more than the expected move ahead of any Nvidia report in the past three years.

The stock gained more than 1 percent on Tuesday and was marginally higher in after-hours trading early Wednesday. and Nasdaq futures were flat.

The stakes are higher than ever, given recent lingering doubts about AI overspending and the lack of an end product so far for the new technology. However, Apple’s (NASDAQ: ) planned announcement on September 9 of a new iPhone with new AI functionality may alleviate some of these concerns.

And it’s a big day of earnings more broadly for Big Tech — with Salesforce (NYSE: ) also reporting on CrowdStrike (NASDAQ: ) following a July issue that triggered a worldwide computer outage.

But while the S&P500 paused before hitting new record highs in anticipation of Nvidia’s results, the market remains buoyant with the Federal Reserve now poised to cut interest rates in three weeks.

Nowhere was that clearer than in the ease with which the Treasury sold another $69 billion of two-year notes on Tuesday. Demand was stronger than expected, and at 3.86 percent Wednesday morning, 2-year yields hit 15-month lows.

Another $70 billion 5-year paper hits the streets later today, with the total of bills and coupons up for grabs this week alone topping half a trillion dollars.

The Treasury is anticipating new debt with short maturities, and nearly three-quarters of that huge total this week is in bills with maturities of less than 12 months — a move that will bring some benefit to debt service costs as Fed rates fall.

But the warm welcome to the new two-year notes, and with an eye on how all those notes will eventually be refinanced in the coming years, the inverted yield curve between two and 10 years narrowed to just 3 basis points — the lower than the last three weeks.

The latest U.S. economic outings provide little bar to these easing expectations, which have risen – now reaching 104 basis points over the rest of the year.

Although consumer confidence rose to a six-month high in August, Americans are growing increasingly concerned about the labor market — whose cooling is now the focus of the Fed’s attention.

And despite multiple supply worries from the Middle East to Libya, oil prices fell again on Wednesday — and are still posting year-to-date losses of more than 5 percent.

The dollar has been quite mixed from all of this. Its DXY index was slightly higher as the euro retreated on weak euro zone credit data and expectations that the European Central Bank will now cut for a second time next month before the Fed kicks off.

Dollar/yen was a bit firmer despite relatively dovish comments from the Bank of Japan. BOJ Vice Governor Ryozo Himino reiterated the central bank’s intention to continue raising interest rates if inflation holds its course, while closely monitoring financial market conditions.

In politics, the latest national opinion polls continue to show Vice President Kamala Harris narrowly ahead of challenger Donald Trump and she remains the odds-on favorite to win – the latest Reuters/Ipsos poll also shows her ahead in its economic policy position.

Harris and running mate Tim Walz are expected to interview with CNN TV on Thursday.

Meanwhile, Trump faced a revised federal indictment on Tuesday accusing him of illegally trying to reverse his 2020 election loss, with prosecutors narrowing their approach after a US Supreme Court ruling that former presidents have a broad immunity from prosecution.

In Europe, British Prime Minister Keir Starmer warned of a “painful” budget on Tuesday and traveled to Berlin on Wednesday to meet German Chancellor Olaf Scholz.

Sterling has been supported since before Labour’s recent election victory, partly on expectations that the new government will ease relations with former European Union partners and seek to soften some of the economically damaging post-Brexit deals.

Key developments that should provide more direction for US markets later on Wednesday:

* Federal Reserve Board Governor Christopher Waller of India and Atlanta Fed President Raphael Bostic are speaking

* US Corporate Revenue: Nvidia, Salesforce, CrowdStrike, HP (NYSE: ), NetApp (NASDAQ: ), JM Smucker (NYSE: ), Cooper Companies, Bath & Body Works (NYSE: )

* US Treasury sells $70 billion 5-year notes, sells 2-year FRN

(By Mike Dolan; Editing by Gareth Jones; [email protected])