Closing summary: US stock markets move higher after Nvidia earnings
Stock markets on Wall Street have opened higher, propelled by Nvidia’s blow-out results on Wednesday.
The Nasdaq stock index, of which Nvidia is a member, rose by 0.8%, while the S&P 500 also gained 0.4%. The Dow Jones was roughly flat. Nvidia shares rose by 5%.
Nvidia’s performance is being driven in particular by the AI boom, which has tripled the value of its shares this year and given it a market value of more than $1tn, the Guardian’s Rob Davies reports:
The US gains followed the FTSE 100, which edged up by 0.2% by Thursday afternoon, and the Stoxx 600, which showed that blue-chip stocks across Europe had also gained ground.
In other business news today:
UK retail sales dropped at the fastest rate since March 2021, according to the Confederation of British Industry.
UK interest rates will peak at 5.5% next month as Bank of England policymakers try to minimise the impact of higher borrowing costs on the UK economy and avoid a prolonged recession, economists predict.
Britain faces a stark choice between paying higher taxes or accepting an inevitable deterioration in public services and the welfare state, a report says. In an in-depth study of the UK tax system, the Institute for Fiscal Studies (IFS) thinktank said the already high level of taxes and the weak prospects for growth meant voters faced a tough choice.
A fifth delay on the introduction of post-Brexit import checks on food and fresh produce arriving in Britain is to be officially announced imminently.
Fossil fuels benefited from record subsidies of $13m (£10.3m) a minute in 2022, according to the International Monetary Fund, despite being the primary cause of the climate crisis.
You can continue to follow our coverage from around the world:
In our coverage of the Russian war on Ukraine, Zelenskiy says Kyiv had “nothing to do” with Prigozhin plane crash; Wagner will be bigger threat under Putin, warns Polish PM
In the UK, Labour party membership fell by almost 25,000 in 2022, while its income rose, figures show
In the US, Donald Trump reportedly “shakes up legal team” ahead of surrender at Fulton county jail
Thank you for reading today, and please do join me again tomorrow for the energy price cap announcement and the build-up to Jerome Powell’s speech at Jackson Hole. JJ
Updated
UK to delay post-Brexit food checks – for fifth time
A fifth delay on the introduction of post-Brexit import checks on food and fresh produce arriving in Britain is to be officially announced imminently, the Guardian understands.
The decision to once again push back plans to enforce the controls – which have been in place for exports from the UK to the EU – is linked to concerns that the move could further fuel food price inflation during the cost of living crisis, while traders have also asked for more time to adapt to the new rules.
The plan to delay the new border controls has been backed by the chancellor, Jeremy Hunt, according to the Financial Times, which broke the news earlier this month that the postponement was on the way.
The government’s post-Brexit border strategy, including inspections of animal and plant products arriving in Britain, was originally supposed to be introduced in 2021.
According to the most recent timetable, import checks had been expected to introduced in three stages over the course of a year, beginning with new paperwork requirements – including health certificates for certain animal and plant products, as well as high risk food products – from the end of October this year.
Meanwhile, physical checks at the UK border had been expected to begin on 31 January 2024.
However, after the latest delay, the schedule has moved back by three months, according to the FT, meaning that new paperwork will not be needed until the end of January, while physical inspections of goods will not start until the end of April.
You can read the full story here:
More food for thought for Jerome Powell et al.: the number of people claiming US unemployment benefits fell to 236,000 last week, down from 240,000 the week before.
That was 10,000 less than expected according to economists polled by Reuters. That means there is not much sign of a big increase in the number of people out of work, which might have been the thing to persuade Powell that interest rate rises have gone far enough.
In other US data, durable goods orders dropped 5.2% in July, 1.2 percentage points more than expected. So that, on the other hand, is a possible sign of a slowdown.
It’s late August, which for most people in Europe and the US means summer holidays. But for central bankers it means something else: time for the Jackson Hole economic symposium.
The gathering is held in a resort in Wyoming, and is hosted by the Federal Reserve Bank of Kansas City (which, confusingly, is in the state of Missouri). It gives central bankers the chance to talk in a slightly less formal setting than usual (and also a chance to pose in front of the mountains without ties on).
Federal Reserve governor Jerome Powell is the main draw at the conference this year. Economists around the world will be perusing his speech tomorrow for signs that US interest rates may have peaked.
They may be disappointed, says the Guardian’s economics editor, Larry Elliott.
The chair of the Federal Reserve will leave the door ajar for further increases in US borrowing costs over the coming months should inflationary pressures persist.
But after sending markets into a tailspin last year by spelling out the Fed’s determination to tame inflation, Powell is expected to give a more nuanced speech to an audience gathered in the Rocky Mountains resort town.
Share prices fell sharply last year after he ripped up his planned speech and instead delivered a surprisingly hawkish message, but after subsequently raising US interest rates to their highest level in more than two decades, official borrowing costs are now thought to be at or close to their peak.
The usual lack of much else going on in global markets means that the speeches can move markets quite significantly. The below charts from Scotiabank show that those moves can go either way, and the S&P 500 share index once lost 3% on the first day of the gathering.
First Day of Jackson Hole via Scotiabank pic.twitter.com/I0C3q8w9WM
— *Walter Bloomberg (@DeItaone) August 24, 2023
Ikea delays opening of London Oxford Street store by a year
Ikea has delayed the opening of its new store on London’s Oxford Street because of issues with renovating the listed building it has chosen.
The world’s biggest furniture retailer bought the building that once housed clothing retailer Topshop’s flagship, in something of a departure from its usual focus on huge out-of-town stores. But the refurbishment has been delayed by a year, the company said on Thursday.
Ingka Investment, the investment arm of the retail group, bought the Grade II listed building at 214 Oxford Street after Topshop owner Arcadia fell into administration, Press Association reports:
The renovation project at the site is creating a new 82,000 square feet store covering three floors, along with four floors of office space. The new store, offering around 6,000 different products, will include a showroom, market hall, and a Swedish deli serving Ikea’s famous meatballs.
Ingka Investments managing director Peter van der Poel said:
When refurbishing this over 100-year-old historic landmark, it’s important for us as an investor to treat the building with care and to preserve its characteristics and atmosphere. At the same time, we want to upgrade it to today’s standards with the best possible sustainability credentials.
To ensure all of this, the extensive refurbishment will take more time than initially anticipated and Ikea Oxford Street city store is now expected to open in 2024.
European gas prices have dropped back sharply after a deal to avert a strike at one of Australia’s key supply facilities.
The price of benchmark Dutch transfer title facility (TTF) futures dropped by 6% from highs of €54.90 per MWh to €52.03. It had earlier fallen as low as €48.50.
Reuters reports:
Woodside Energy on Thursday reached an in-principle agreement with unions at Australia’s largest liquefied natural gas (LNG) project, potentially averting a disruption to supplies from one of the world’s biggest exporters of the super-chilled fuel.
The project in Western Australia, along with the Gorgon and Wheatstone LNG facilities of Chevron Corp, account for about one-tenth of global supplies.
Both Woodside and the union alliance representing workers at the offshore platforms of its North West Shelf facility announced the initial deal in separate statements after a round of talks both sides deemed positive.
The move down will be a relief for European gas consumers, who are increasingly reliant on imports from non-Russian sources after its invasion of Ukraine. The below chart shows the chaos caused in the European gas market as countries scrambled to find other sources of LNG.
Here is the CBI’s retail sales chart, which illustrates the struggles of the retail sector and the UK consumer:
The pandemic lockdowns obviously wreaked havoc on retail sales patterns – people spent a lot less on non-food items when locked in at home. But compared to the pre-pandemic period, even during the years of austerity and stagnating wages, the balance of retailers seeing falling sales only dropped as low once.
The latest struggles are likely an effect of the cost of living crisis, caused by persistent inflation. In the last 25 years, UK inflation had only briefly risen above 5% for two brief periods. But the energy crisis, exacerbated by Russia’s invasion of Ukraine, pushed it above 11% last autumn, its highest in 40 years.
British retail sales drop at fastest since coronavirus lockdowns - CBI
UK retail sales volumes dropped in the year to August at the fastest pace since coronavirus pandemic lockdowns in March 2021, according to new data from the Confederation of British Industry (CBI).
The balance of retailers that reported a sales decline rose to 44%, a level seen only once between the pandemic and the global financial crisis in 2008, according to a weighted poll of CBI retailer members, which is concentrated among the largest companies (albeit with significant changes since the scandal over sexual misconduct).
Sales are expected to continue to contract next month, but at a slower pace, the survey found.
Martin Sartorius, the CBI’s principal economist, said:
Retail sales in August fell at their quickest pace in over two years, culminating a summer that many retailers would rather forget.
Against a backdrop of rising interest rates and weak demand, retailers foresee cuts to investment over the next year, while employment is expected to fall again next month.
While the economists polled by Reuters may be thinking that the Bank of England’s key rate will peak at 5.5%, financial traders are still betting on a slightly higher and later top.
Trading data shows that there is an 89% chance of a rate hike at the next meeting of the Bank’s monetary policy committee on 21 September. But financial markets are still pricing in a 75% chance that bank rate will rise once more after that – to 5.75% on 2 November.
Interest rate derivatives (which people use to manage the risk of rates rising/speculate) are handy for showing what traders believe is coming down the track. The below table is a bit dense, but bear with us: the right-hand side shows the implied probability for each level of interest rates at each scheduled meeting for the next year.
The table tells us that markets are still pricing in a one-in-three chance that rates will rise as high as 6% by February. It could be a tough winter for the UK economy (although monetary policy has a lag of about 18 months, so it would mostly be the effects of previous hikes affecting the economy by then).
Of course, these probabilities aren’t gospel: it is just the bets of millions of traders around the world. They can all be wrong – and everything could be tipped by an odd word from Andrew Bailey.
Updated
UK interest rates to peak in September at 5.5% - economists
UK interest rates will peak at 5.5% next month as Bank of England policymakers try to minimise the impact of higher borrowing costs on the UK economy and avoid a prolonged recession, economists predict.
A fresh poll of economists by Reuters suggests the Bank will approve a 15th consecutive increase in interest rates at its next meeting on 21 September as part of efforts to combat price inflation, which is still more than three times higher than its 2% target.
All but one of the 62 economists surveyed said they expected the Bank’s base rate to rise by a quarter of a percentage point next month, taking rates from 5.25% to 5.5%. The only outlier expected a half-point hike, which would take rates to 6%.
The Bank has been raising rates at a clip in an effort to lower surging inflation, which peaked at 11.1% last October and has since eased to 6.8% in July.
You can read the full story here:
The Nasdaq stock index is expected to jump by 1.2% when it opens later, according to futures trading.
The blockbuster Nvidia results are the key driver, with the S&P 500 blue-chip index also due to gain 0.6%. Nvidia is itself listed on the Nasdaq, which is heavily weighted towards big tech stocks.
Russ Mould, investment director at AJ Bell, an investment platform, said:
The chip specialist has been one of ‘The Magnificent Seven’ stocks driving US markets this year, with its shares up 243% since the start of 2023. It’s been one of the market superstars and given investors hope that it is still possible to make good money from equities in an environment where interest rates continue to go up and inflation remains sticky in places.
Any disappointment in its latest results would have gone down like a lead balloon. It could have hurt investor sentiment and caused contagion elsewhere in the markets. Fortunately, it’s pulled another rabbit out of the hat and given investors everything they wanted and more.
This appears to have sprinkled some magic dust on the markets and provided new impetus to share prices. The rest of the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft and Tesla) all saw their shares rise in after-hours trading following Nvidia’s results, and on European markets we’ve seen tech-related stocks such as ASML and Scottish Mortgage move higher.
The Unite union has called off strike action by bus drivers at Gatwick airport this weekend after accepting an improved pay offer, it said.
Members of the union working at ground handlers Red Handling and Wilson James, who transported passengers to planes, have agreed to pay rises worth 14% and 16% respectively, plus better sick pay and other benefits, Unite said.
The union said there is no other strike action scheduled at the airport, as the end of the summer holiday season approaches.
Record numbers asking for energy bills help before winter even begins
A record number of people in the UK have asked for help with their energy bills before winter has even begun, according to Citizens Advice, in a worrying sign of the difficulties facing British households.
The charity said that it estimates that 7.8m people in the UK had to borrow to pay their energy bills in first six months of 2023.
The UK’s energy regulator, Ofgem, is due to publish its latest energy price cap tomorrow. The average annual household energy bill is expected to fall to about £1,823, according to forecaster Cornwall Insights. But that will not provide much help households who are already struggling to pay bills in summer, outside the heating season.
Clare Moriarty, chief executive of Citizens Advice, said the government should help people with their bills through the winter ahead.
What we saw last winter must never be repeated. Struggling households unable to pay their energy bills, people unable to top up their prepayment meter, and record numbers coming to us for crisis support.
With increasing numbers of people we help facing a negative budget, where they simply don’t have enough to cover their essential bills, there is a real risk this winter will be worse.
Here is the background on the energy price cap (which is better thought of as a maximum price per unit of energy) from our story last week:
The energy price cap was introduced in January 2019, and before Russia’s invasion of Ukraine accelerated a global energy crisis it had always sat at below £1,300 a year. Its rapid rise ever since, which prompted the government to supersede the cap with an energy price guarantee, has reignited concerns that bills are unaffordable for millions of household living in fuel poverty and has prompted fresh calls for a cheaper “social tariff” for the most vulnerable.
Absent the energy price guarantee – a subsidy for every household – average bills will actually be higher this winter between January and March, Citizens Advice said: it was £141.33 this year but will rise to £173.55 in 2024 if current forecasts hold.
Disabled people, single parents and low-income households earning less than £29,000 will be the hardest hit this winter, it added.
If Nvidia and computer chip stocks are on the crest of an artificial intelligence wave, here is an example of a stock whose wave has certainly broken: exercise bike company Peloton.
Peloton was once the darling of the coronavirus pandemic-era stock market, with a market value approaching $50bn (£39bn) at the height of the bubble as investors raced to buy shares for the stay-at-home (for the middle class at least) economy.
It is safe to say that bubble has burst, and its shares hit another record low last night after it missed profit expectations and said subscribers to its exercise videos – streamed through the screen attached to the bike – dropped. It partly blamed a recall of its bike seat post after US regulators raised safety fears.
Shares in the company slumped by as much as a quarter as low as $5.05 on Wednesday, down from above $170 at the height of the pandemic.
Also of note: European semiconductor companies are among the big winners this morning, borrowing momentum from Nvidia.
ASM International, ASML, Aixtron and BE Semiconductor have each gained between 2.6% and 4.3% in early trading.
European shares have gained across the board in the opening trades, as expected.
Here are the snaps from Reuters:
EUROPE’S STOXX 600 UP 0.7%
BRITAIN’S FTSE 100 UP 0.7%
FRANCE’S CAC 40 UP 1.0%, SPAIN’S IBEX UP 0.8%
EURO STOXX INDEX UP 0.9%; EURO ZONE BLUE CHIPS UP 1.0%
GERMANY’S DAX UP 1%
Nvidia sales surge and hopes for end of hike cycle help stock markets
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
Stock markets have gained ground after chipmaker Nvidia late last night showed that it is still riding high on the boom in generative artificial intelligence.
Really looks as if a new computing era has begun: #Nvidia reports Q2 Data Center revenue of $10.32bn, up 171% YoY. "During the quarter, major cloud service providers announced massive Nvidia H100 (artificial intelligence) infrastructures," CEO Jensen Huang said.… pic.twitter.com/wMiee1tZf8
— Holger Zschaepitz (@Schuldensuehner) August 23, 2023
Shares in the chipmaker rose by 7% in after-hours trading, meaning they are likely to open at a record high later today. The top line:
The chipmaker Nvidia has far surpassed quarterly expectations, raking in $13.5bn in revenue – over $2bn more than the $11.2bn Wall Street analysts had predicted – amid skyrocketing demand for its computer chips that power artificial intelligence (AI) systems.
The blockbuster second quarter comes at a moment of intense hype around generative AI, a mood that Nvidia has been uniquely positioned to capture. The 30-year-old company is one of the biggest winners in the AI boom and is now valued at over $1tn, with its chips powering nearly all the world’s major artificial intelligence apps, including ChatGPT.
Hong Kong’s Hang Seng index is up 2.2%, while Shanghai Stock Exchange’s composite index has gained 0.4% with a few minutes of trading to go.
Futures suggest that the FTSE 100 and Germany’s Dax benchmark index will gain 0.6% on opening this morning.
It is not just Nvidia that has boosted the mood. In the sometimes upside-down world of financial markets, weak US and European economic data may have helped the stock market. The purchasing managers’ index (PMI) numbers from S&P Global (which bought IHS Markit) delivered a round of negative news for the global economy yesterday.
Analysts at Deutsche Bank, led by Henry Allen, wrote:
Concerns about a hard landing gathered pace over the last 24 hours, which triggered a major rally as speculation mounted that central banks might press pause on their rate hikes. Those fears were driven by several factors, but the biggest were the downside surprises in the flash PMIs, which suggested the global economy was quite a bit weaker in August than previously thought.
US mortgage rates have also hit their highest since 2000, and US jobs numbers may also be revised lower, further denting support for more rate hikes.
The key issue will be the response of central bankers, who have gathered for their annual shindig starting today at the Wyoming resort of Jackson Hole. If they indicate that their appetites for higher interest rates may be waning, then expect that to light the touchpaper for a further share price rally.
The agenda
11am BST: UK Confederation of British Industry distributive trades retail figures (August; previous: -25 points)
1:30pm BST: US durable goods orders (July; prev.: up 4.7% month-on-month; consensus: -4%)
1:30pm BST: US initial jobless claims (week of 19 August; prev.: 239,000; cons.: 240,000)
All day (MDT): Economic Policy Symposium, in Jackson Hole, Wyoming
Updated
