Summary:
1- The U.S. Treasury is playing a game of cat and mouse with debt sales.
2- Today is the most important day in the earnings season for Nvidia.
3- Gold continues to rise, nearing an all-time high amid significant risks.
4- French stocks are at risk again due to political deadlock following the Olympic calm.
The U.S. Treasury is playing a game of cat and mouse with debt sales.
The U.S. Treasury has a substantial amount of debt to repay next year, but its active management of maturity profiles suggests that a so-called “crisis” in U.S. debt is unlikely to happen anytime soon. Nearly three-quarters of the surge this week was in Treasury bonds, and these securities are expected to be refinanced at gradually lower interest rates if U.S. rates fall as anticipated. While massive weekly Treasury sales have become commonplace, many investors continue to trade cash, reflecting ongoing concerns about rising government debt levels that need willing buyers. Data indicates that debt service costs account for 12% of government spending, and the deficit is expected to exceed one trillion dollars over the next decade. It is also projected that the debt-to-GDP ratio will double to 200% by mid-century.
The conclusion of Apollo Global Management's chief economist is straightforward: beware of unstable auctions, potential credit rating downgrades, and the ongoing threat that long-term bond investors will begin demanding a “long-term premium” to hold long-term Treasury bonds. However, by disclosing the debt maturity schedule in advance, the Treasury reveals one of its key tools to circumvent a debt crisis. Although the average weighted maturity of the overall tradable debt stock remains above pre-pandemic levels at nearly six years, bonds due in one year or less make up 22% of the total, a significant increase from the 10%-15% observed 18 months ago. With interest rates currently exceeding 5%, this short-term issuance will be costly. However, the picture may change significantly if the Federal Reserve shifts to a rate-cutting stance next month and lowers rates by more than 200 basis points over the next year, as predicted by the futures markets.
Today is the most important day in Nvidia's earnings season.
It might very well be the most significant day because it marks Nvidia's earnings announcement. Nvidia's share makes up about 6% of the S&P 500 index and is responsible for a third of the index's gains this year, which makes the company's earnings day particularly impactful for the market. Expectations for Nvidia’s second-quarter results are understandably high. In figures, Nvidia's revenue forecast stands at an impressive $28 billion for the second quarter of this year, more than double what the company earned a year ago. Market predictions vary between $27 billion and $32 billion. Data from the LSE Group suggests that Nvidia's sales may have grown by 75% in the second quarter to $31.69 billion, driven by ongoing high spending from major tech companies, which account for up to 40% of the company’s revenue. Additionally, TSM’s reported earnings earlier in this earnings season indicate that Nvidia might also experience a strong quarter. Given that Nvidia has consistently exceeded its own forecasts by $2 billion over the last four quarters, there is reason to believe that $30 billion in sales is certainly within reach. After a year and a half, and based on the available data and figures today, it's very challenging to issue a negative judgment about Nvidia. However, everything from the numbers to the guidance has to look outstanding to push the stock price to new record levels. Bad news tends to come when you least expect it.
Gold Continues to Rise Near All-Time High Amid Numerous Risks
The price of gold continues to rise during the Asian trading session, supported by deteriorating conditions in the Middle East and the cautious stance of the Federal Reserve. Traders are eagerly awaiting speeches from Williams and Bostic of the Federal Reserve on Wednesday. Gold (XAU/USD) has surpassed the $2500 mark today, bolstered by escalating geopolitical tensions in the Middle East. Additionally, U.S. Federal Reserve Chairman Jerome Powell highlighted in his speech at the Jackson Hole symposium last week that it may be time to begin cutting interest rates, which has supported the precious metal by reducing the opportunity cost of holding non-yielding assets.
French Stocks at Risk Again Due to Political Stalemate After Olympic Calm.
After a period of relative calm during the Olympic Games, the risks threatening French stocks have risen once more, with the CAC 40 index lagging behind major markets on the continent. It has increased by less than 1% this year, even as indices like the Italian FTSE MIB, the Spanish IBEX, and the German DAX have recorded double-digit returns. The ongoing political stalemate fuels concerns over the country's failure to address its financial and economic challenges. French bonds and stocks are facing significant difficulties, as the cost of insuring against default rises, and a budget proposal for 2025 must be presented by October 1.
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