Morning Bid: US TV faceoff eyed, ailing yen steadies

A look at the day ahead in U.S. and global markets from Mike Dolan

With a frenetic week of politicking ahead in the United States, France and Britain, world stock markets held the line on Thursday, sovereign bonds were edgier and the dollar was buoyant.

U.S. President Joe Biden and Republican former president Donald Trump face off in a TV debate later today – sounding the klaxon in markets for November’s election campaign. A second debate is scheduled for Sept. 10.

France holds the first round of its snap parliamentary election on Sunday and Britain heads to the polls next Thursday.

Despite some steep single-stock swings this week, the S&P500 is hovering close to record highs with gains of more than 17% for the year to date. The VIX volatility gauge remains subdued below 13 and, although November VIX futures are higher at 17.4, they too have slipped back this week.

French and British stocks were slightly lower.

Irked by sticky inflation updates from Australia and Canada this week and another heavy diary of new debt sales, U.S. Treasury yields popped up to two-week highs. French 10-year yields and debt spreads over Germany also nudged higher.

While Friday’s release of the U.S. PCE inflation gauge tops the week’s economic schedule, Treasuries first have to navigate Thursday’s latest jobless update and first-quarter GDP revision.

But the dollar remains buoyant around the world, not least against the ailing Japanese yen, which swooned to its weakest level since 1986 at just under 161 per dollar on Wednesday despite repeated warnings from Japanese officials about possible intervention. It steadied earlier today at about 160.50.

With uncertainty about the Bank of Japan’s next policy moves, some bond market players who participated in meetings with the central bank in June called on it to trim bond purchases in several stages to improve market liquidity, minutes of the meeting released by the BOJ showed on Thursday.

The euro and sterling also recovered some lost ground on Thursday ahead of the political events of the week ahead.

Sweden’s central bank held its key interest rate at 3.75% as expected but, in a dovish twist, it said that if inflation prospects remain the same, the policy rates can be cut two or three more times during the second half of the year.

In May, when it cut the policy rate for the first time in eight years, the Riksbank said it saw two more cuts in 2024.

In China, the yuan steadied from new year-lows but Chinese stocks fell again – with the CSI300 losing another 0.75% after news that China’s industrial profits rose at a sharply slower pace in May.

Back on Wall Street, it has been a sparky end to the first half for many individual stocks.

After Nvidia (NASDAQ:NVDA)’s sudden plunge over the past week on nerves about the lofty valuations of artificial intelligence stocks, Micron Technology (NASDAQ:MU) dropped more than 7% overnight in out-of-hours trading.

Although Micron beat estimates for third-quarter revenue on Wednesday, its current-quarter forecast disappointed investors who were upbeat about the chipmaker’s performance in the AI boom.

Nvidia slipped 2% in sympathy in overnight trade.

Shares in Amazon (NASDAQ:AMZN) jumped almost 4% earlier on Wednesday, bringing the company’s market value above $2 trillion – the fifth U.S. corporation to cross that level.

Rivian (NASDAQ:RIVN) soared 23% as German automaker Volkswagen (ETR:VOWG_p) said it will invest up to $5 billion in the U.S. electric-vehicle maker. And appliances manufacturer Whirlpool (NYSE:WHR) surged 17.1% after Reuters reported that German engineering group Robert Bosch is weighing a bid.

Elsewhere, the Federal Reserve’s annual “stress test” exercise on U.S. banks showed the biggest lenders would have enough capital to withstand severe economic and market turmoil – but firms faced steeper hypothetical losses this year due to riskier portfolios.

The exercise found 31 big banks would weather a spike in the jobless rate, severe market volatility, and dives in the residential and commercial mortgage markets and still retain enough capital to continue lending.

In South America, Bolivian armed forces pulled back from the presidential palace in La Paz late Wednesday evening and a general was arrested after President Luis Arce slammed a “coup” attempt against the government and called for international support.

Key developments that should provide more direction to U.S. markets later on Thursday:

* US weekly jobless claims, May durable goods orders, May trade balance, May wholesale/retail inventories, May pending home sales, Q1 GDP revision/corporate profits and Kansas City Fed’s June business surveys; Mexico May jobless and trade

* Mexican central bank policy decision

* International Monetary Fund Managing Director Kristalina Georgieva briefing on conclusion of IMF’s Article IV consultation on US economy

* European Union summit in Brussels on new EU Commission