Marketmind: Catching breath as Nvidia update due

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

A cocktail of renewed AI excitement, Nvidia’s imminent earnings update, an impressive 20-year Treasury auction and a leveling off of crude oil prices has invigorated the holiday week.

Intrigue and speculation over this year’s artificial intelligence craze has gone up several gears since Friday’s ouster of Sam Altman as boss of ChatGPT-developer OpenAI and his subsequent defection to the firm’s biggest sponsor Microsoft – fueling talk Big Tech will hoover up all the talent in the area.

While the OpenAI boardroom row seems to center on the speed and openness of further AI development, amid some regulatory disquiet, the shift in key players lifted Microsoft and the other megacap tech names 1.5% on Monday.

And with semiconductor giant Nvidia expected to report another blockbuster earnings report after the bell on Tuesday – as the AI boom has seen explosive growth in demand for its high-end chips – Wall St stocks powered to their highest close since Aug. 1.

Nvidia is expected to report a nearly 173% jump in revenue for the third quarter, according to analysts polled by LSEG, and Wall Street estimates it will forecast a more than 195% rise in revenue for the current quarter. Its stock, which is up 240% this year, was up modestly ahead of Tuesday’s open.

The S&P500’s rally to almost four month highs on Monday – marking an 11% surge in less than four weeks and tracking year-to-date gains of some 18.5% – struggled for air in the futures market, where there was a slight downtick overnight.

But the other, only slightly more prosaic, craze around peak borrowing rates remained cause for optimism.

Decent demand for the $16 billion auction of often-unloved 20-year U.S. Treasury bonds on Monday saw long-term yields take another leg down, with 20-year yields themselves down almost 10 basis points since Friday to their lowest since Sept. 22.

Benchmark 10-year year yields nudged lower too toward recent two-month lows.

Helping keep the disinflation fires burning was a leveling off of the latest crude oil price bounce – with crude markets now focused on the weekend OPEC+ meeting. Still down 19% in less than two months, oil prices remain in the red year-on-year.

As to Federal Reserve thinking, the central bank is expected to issue minutes of its November meeting and will be scoured for clues to next steps as always. Even though the Fed stance is clearly evolving, there’s a dearth of new data on the diary this week and the Thanksgiving holiday puts a hold on events.

The dollar continued to fall, however, with its DXY index down for the fourth day to its lowest since August. Dollar losses were broad based, but China’s yuan appeared to lead the way to its strongest level since July 27.

Markets were surprised the People’s Bank of China continued to support the yuan via its daily fixing despite the currency’s sharp gains over the past week.

Aside from speculation on peak U.S. interest rates, Chinese exporters’ year-end hedging flows, some easing of Sino-U.S. tensions and increased China economic stimulus were all cited as bolstering the yuan.

Overseas stocks, however, were relatively tame compared to the renewed fizz on Wall St.

In Europe, sterling pushed higher ahead of expected tax cuts at Wednesday’s budget speech from UK finance minister Jeremy Hunt. Britain borrowed less than predicted by its budget forecasters in the first seven months of the financial year, data showed on Tuesday – pointing to some fiscal loosening into what’s likely to be an election year.

Italy on Monday sold a 25% stake in bailed-out Monte dei Paschi di Siena, raising 920 million euros ($1 billion) and advancing plans to re-privatise the world’s oldest bank two years after a failed first attempt. Its stock fell.

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

* Philadelphia Federal Reserve’s service sector survey, Chicago Fed’s Oct business index; Canada Oct inflation

* Fed releases minutes from the most-recent Federal Open Market Committee meeting; European Central Bank President Christine Lagarde and ECB board member Isabel Schnabel both speak

* U.S. Treasury auctions $15 billion in 10-year inflation-protected notes, 2-year floating rate notes

* U.S. corporate earnings: Nvidia, Best Buy, Lowes, Autodesk, Analog Devices, Medtronic, Jacobs Solutions

($1 = 0.9168 euros)

(By Mike Dolan, editing by Susan Fenton