Closing summary: Wall Street gains as stronger GDP figures overshadow Nvidia
The US economy performed better than expected in the second quarter, helping GDP to grow faster than first thought.
The annualised rate of growth for the second quarter, at 3% rather than the 2.8% seen in the first reading, does not suggest an economy that is on the brink of recession. Share prices on Wall Street duly rose, with the S&P 500 rising by 0.5%.
2Q24 GDP was revised up to 3% (from 2.8%) in its second release. The consumer continues to be a key driver of growth as personal consumption expenditures were revised up to 2.9% for the quarter from 2.3%. pic.twitter.com/KwKi4Ixq9D
— Kathy Jones (@KathyJones) August 29, 2024
🇺🇸 Robust economic momentum in Q2🌞
— Gregory Daco (@GregDaco) August 29, 2024
📉Real #GDP in Q2 '24
✅+3.0% q/q: revised up 0.2pt
✅+3.1% y/y
🛒Consumer +2.9%
🏘️Resid -2.1%
👩💻Biz invest +4.6%
⬆️Inventories +0.8pt
📦Trade -0.8pt (strong M)
🏦Gov +2.7%
📉PCE #inflation
✅Headline 2.6% y/y (flat)
✅Core 2.6% (⤵️0.3pt) pic.twitter.com/7of50DX41g
That helped Wall Street stock market indices to weather the turbulence that had been expected last night and earlier this morning when Nvidia shares fell in pre-market trading.
The chip designer’s shares were down by 2% in early trading on New York’s Nasdaq, but that is quite a bit different from the 7% move in pre-market trading in the hours after it unveiled – don’t forget – a doubling in sales and strong profits.
Richard Flax, chief investment officer at Moneyfarm, a wealth manager, said:
The faster-than-expected growth in the second quarter should give a bit more comfort that the US economy remains in decent shape. This revision could also provide a slight boost to the Harris presidential ticket, given that the economy has been a key area of focus for both campaigns.
Today’s economic data may also draw some attention away from the intense focus on Nvidia’s results.
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Thank you for following the business live blog today. Please do join me tomorrow for another day of business, economics and financial markets. JJ
Wall Street stock market indices have indeed risen at the opening bell, despite Nvidia shares dipping by 1%.
Here are the opening shaps from Reuters:
S&P 500 UP 15.06 POINTS, OR 0.27%, AT 5,607.24
NASDAQ UP 50.33 POINTS, OR 0.29%, AT 17,606.36
DOW JONES UP 281.43 POINTS, OR 0.68%, AT 41,372.85
Wall Street set to gain as GDP figures suggest US economy is growing faster
Wall Street stock indices should be expected to rise at the opening bell in a few minutes according to futures, after stronger-than-expected GDP figures suggested the US economy is growing steadily.
The S&P 500 is due to rise 0.3%, while the tech-focused Nasdaq is due to rise 0.4%. The Dow Jones industrial average is set to gain 0.6%.
Stephen Stanley, chief economist at Santander US, a bank, said:
The bump stemmed from a sharp upward adjustment to real consumer spending growth, from 2.2% to 2.9%, partially offset by smaller downward revisions to business investment, housing, and government spending.
We have some economists declaring that the US economy is in or on the cusp of a recession. In my view, we are far from an economic downturn, though I do anticipate that the economy will slow considerably late this year and early next year.
My early outlook for the third quarter is that we will enjoy one last solid quarter, driven mainly by the consumer (again).
Updated
US economy grew faster than expected in second quarter
The US economy grew faster than previously thought in the second quarter, according to new GDP figures.
The world’s largest economy expanded at an annualised rate of 3% in the second quarter, faster than the 2.8% initially thought, according to the Bureau of Economic Analysis.
More detail to come.
German inflation fall sets stage for September ECB rate cut say economists
German inflation fell by more than expected in August, in a shift that could give the European Central Bank (ECB) cover to start cutting interest rates.
Inflation dropped from 2.6% in July to 2% in August, according to the harmonised index of consumer prices reported by Germany’s federal statistics office. That was faster than the 2.3% expected by economists polled by Reuters.
It was the slowest rate of inflation in the EU’s largest economy since March 2021.
The ECB has a 2% inflation target, and Germany’s wavering economy has dented growth across the bloc. So if inflation falls below target then there would be little reason for the ECB led by Christine Lagarde to hold back on rate cuts that would support the economy.
Carsten Brzeski, global head of macro at ING, an investment bank, said:
If confirmed by tomorrow’s eurozone inflation data, today’s German data should make the decision to cut interest rates at the September meeting a bit easier for the ECB. Fading inflationary pressure combined with fading growth momentum offer an almost perfect macro backdrop for another rate cut. At the same time, however, forward-looking inflation indicators like selling-price expectations and wage growth show that there are still reasons to be cautious.
In fact, let’s not forget that for central banks, orchestrating a soft landing with inflation nicely settling at target without hurting the economy is like winning a gold medal at the Olympics: rare.
Melanie Debono, senior Europe economist at Pantheon Macroeconomics, a consultancy, said:
As the Spanish month-on-month reading released earlier was in line with our forecast, a month-on-month reading for the eurozone as a whole at 0.0% month-on-month is a decent bet, consistent with a drop in the eurozone headline to the ECB’s target, 2.0%, from 2.6% in July.
A lot depends on the HICP data in France and Italy released tomorrow ahead of the eurozone report. We have pencilled in +0.5% month-on-month and -0.1% month-on-month, respectively, though if today’s numbers are anything to go on, the risks are to the downside.
European brandy escapes Chinese tariffs - for now
Europe’s brandy makers will be raising a toast today, after China’s commerce ministry said that it would not raise tariffs on the products – for now.
The share prices of booze makers Remy Cointreau and Pernod Ricard rose by 4.5% and 2.9% respectively on Thursday.
Reuters reported:
China’s commerce ministry said in a statement it had found that European distillers had been selling brandy in its 1.4 billion-strong consumer market at a margin in the range of 30.6% to 39% and that its domestic industry had been damaged.
“Provisional anti-dumping measures will not be taken in this case for the time being,” the statement said, leaving open the possibility Beijing may act at some time in the future.
Holding the threat of tariffs over EU countries could prove useful in China’s efforts to prevent tariffs on its electric cars. Chinese carmakers are due to pay 21.3% on average if cooperated with an EU investigation and 36.3% on average if they did not.
While the measure has already been announced, China may be hoping to persuade EU politicians to weaken it. The US and Canada have also imposed steep tariffs on Chinese cars.
Not to cover every little move in relatively thin trading before the market, but Nvidia’s share price is back down by 4% with 90 minutes to go until the Wall Street opening bell.
The percentage fluctuations may be small, but with a company that has rapidly grown to be this large – on the back of a historic cycle of hype for artificial intelligence – even small moves are worth billions of dollars.
Nvidia’s shares were worth $3.09tn before it published its latest results last night, up a mere 687% over the last two years, according to data company Refinitiv. A 4% drop would equate to a $123bn fall in the notional value of its shares.
That is a truly enormous number. For context, Refinitiv only lists 126 companies with a market capitalisation of more than $120bn.
Only two other companies are valued more than $3tn: Apple, the world’s biggest at $3.5tn, and Microsoft, valued just below Nvidia (at least ahead of the market open in New York).
$120bn gets you a lot. You could buy Boeing ($105bn), the world’s second largest planemaker. Or you could have UBS, the Swiss private banking giant ($107bn – sticking to dollars for ease).
In the UK your money would get you the oil supermajor BP ($70bn). Or you could buy most of the British defence industry by swallowing up BAE Systems ($40bn) and Rolls-Royce ($42bn) as a pair.
Back in the world of computer chips, Bloomberg News has an interesting story on another of the companies that is key to the global industry.
The Netherlands plans to limit the ability of chip toolmaker ASML to repair and maintain semiconductor machinery in China, Bloomberg reports, citing unnamed sources.
ASML makes the advanced lithography machines that are used to draw transistors onto semiconducting material at the nanometre scale. It is the only company capable of making equipment to manufacture of the world’s most advanced chips, including those with four-nanometre transistors made by Taiwan’s TSMC for Nvidia.
The reliance on ASML has made it a crucial player in the race for dominance of the most advanced chip technologies between China and allies of the US, including Taiwan. Delays or even inability to repair ASML machines could prove a setback for Chinese chipmakers.
Bloomberg reported: “The government of prime minister Dick Schoof will likely not renew certain ASML licenses to service and provide spare parts in China when they expire at the end of this year.”
A decision to limit the licences would likely further spur China’s efforts to build its own chip industry, after exports to China of certain ASML products were barred earlier this year. Chinese tech champion Huawei has been at the centre of those efforts.
Sainsbury's to create 1,000 new jobs as it converts Homebase to supermarkets
Sainsbury’s has said it will create 1,000 new UK jobs after reaching a deal to buy 10 Homebase stores to convert them to supermarkets.
The total investment, including buying the leases and spending on fitting them out, will be £130m, Sainsbury’s said in a statement to the stock market.
The first of the Homebase stores will reopen as supermarkets next summer, with all of them to be completed by the end of next year.
Homebase – once actually part of Sainsbury’s – has been owned by private equity fund Hilco Capital since 2018, when it paid £1 for the retailer as it went through an agreement with creditors that resulted in 1,500 job losses. Sky News last month reported that Hilco was considering a sale to The Range, a Devon-based homeware chain that bought out the remains of the Wilko brand.
Simon Roberts, Sainsbury’s chief executive, said:
Sainsbury’s food business continues to go from strength to strength as we push ahead with our Next Level Sainsbury’s plan. We have the best combination of value and quality in the market and that’s winning us customers from all our key competitors and driving consistent growth in volume market share.
We want to build on this momentum which is why we are growing our supermarket footprint. Our ambition is to be customers’ first choice for food and these new stores will showcase some of the best that Sainsbury’s supermarkets have to offer to even more communities around the country.
Nvidia share price recovers to 1.9% decline in pre-market trading
Nvidia shares were down by 7% early this morning in trading before Wall Street stock markets open, but they have recovered somewhat. Now they are down by only 1.9%.
Analysts have had time to digest the results, and some are emphasising the message that the chip designer’s performance was still very impressive – even if it did not blow past the most optimistic estimates as it has done in the past.
Blayne Curtis and Ezra Weener, analysts at Jefferies, a US investment bank, have upgraded their price target after the results. They said they were happy with indications that delays to the new Blackwell chip are sorted, and the current Hopper model is still selling well.
Hopper demand remains strong and the company noted the Blackwell ramp was a key topic of discussion with expectations of several billion in revenue starting in 4Q – on time despite fears of more significant delays. The delay was fairly well understood already but the company did note a change to the Blackwell GPU mask to improve production yield.
Overall, AI spend levels won’t be without a debate but the story is back on track with the Blackwell delay fears now in the rearview and several billion dollars of Blackwell layering onto continued growth in Hopper in the back half.
Lindsay James, investment strategist at Quilter Investors, a fund manager, said:
Whilst there is no question that the appetite for the company’s product range remains strong, ahead of the delayed shipments of the latest chip design in Q4, expectations will change little following this release, likely taking a little hot air out of the stock as a result. However, with earnings set to more than double in this fiscal year and the valuation not excessive in light of this growth, there is something for both the stock bulls and the bears to sink their teeth into.
UK to enter trans-pacific partnership trade bloc on 15 December
The UK will officially enter a new trading bloc on 15 December, after ratification by Peru completed the requirements to join.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will eventually give British exporters tariff-free access to 11 countries, although it will only apply at first to the six who have ratified it: Japan, Singapore, Chile, New Zealand, Vietnam and now Peru.
The UK’s business department on Thursday said that “the agreement could boost the UK economy by around £2bn annually” – albeit by 2040. It was seen as a key trade achievement by the previous Conservative government.
But don’t think of it as an economic game-changer to make up for the dent to trade with the EU after Brexit. The Observer’s political editor, Toby Helm, on Sunday reported:
Last year, as the Tories presented entry into the Trans-Pacific Partnership as a cornerstone of post-Brexit “global Britain”, the Office for Budget Responsibility said it would add just 0.04% to GDP in the “long run”, which it defined as 15 years of membership.
The spending watchdog also said that two separate bilateral deals between Britain and Australia and New Zealand, also hailed as landmark trade agreements following Brexit, “might increase the level of real GDP by a combined 0.1% by 2035”.
Douglas Alexander, the minister of state for trade policy, said businesses should contact the government to ask about possible benefits. He said:
This is good news for UK businesses, who are now one step closer to being able to take advantage of the opportunities our membership of CPTPP will bring.
We’re extremely grateful to all the CPTPP partners that have already ratified our accession - Japan, Singapore, Chile, New Zealand, Vietnam and now Peru - and look forward to more doing so over the coming months.
The eurozone economy is on track to improve, according to a measure of economic sentiment from the European Commission.
The economic sentiment indicator, based on responses from businesses and households, rose from 95.8 points in July to 96.9 in August. That was higher than the flat reading expected by economists.
However, the indicator remains below its long-term average – hardly surprising when the largest economy, Germany, is still struggling markedly.
The Commission’s measure of consumer confidence fell slightly, to -13.5 points. That was down from -13.4 points the month before.
Nvidia has been the biggest beneficiary of the hype around artificial intelligence, on the basis that it is the main “picks and shovels” play: rather than trying to take part in the gold rush yourself, be the person who owns the tools for the rush.
But another measure of whether that hype can be maintained will be the latest fundraising by OpenAI. It was the company that kicked off the investment frenzy when it released ChatGPT in late 2022, a chatbot that can speak and provide answers in a way that seems on a level with humans (albeit with the same human bluster and fallibility).
The company, run by Sam Altman, has already achieved a valuation of $86bn, but it is reportedly seeking investment that will put it above the $100bn mark, Bloomberg News and the Financial Times reported. The FT said:
The San Francisco-based company is talking to venture capital firms including Thrive Capital, which is set to invest $1bn and lead the round, as well as other investors, according to two people with knowledge of the situation.
According to one investor in the company, OpenAI stock has recently traded on the secondary market at a price that implies a valuation of more than $110bn.
That investment would be good news for Nvidia, as much of that money will probably go directly to it to buy graphical processing units (GPUs), the specialised chips designed for computer gaming that turned out to be ideal for training AI systems.
Altman’s most recent post on X (from three weeks ago) was very complimentary about Thrive’s boss, Josh Kushner. But then again it’s probably worth being nice when a billion dollars is reportedly on the table…
i have been fortunate to work with many great investors; there is no one i'd recommend more highly than josh. https://t.co/7oshACICGq
— Sam Altman (@sama) August 8, 2024
European big company share prices have risen to their highest level in six weeks, even if they have hardly been set alight.
The Euro Stoxx 600 index gained 0.4% to reach its highest since 15 July. Since then shares have plunged in that early August slump, and then more than recovered.
European tech stocks have risen by 0.8% on Thursday morning. Reuters reported:
European semis are taking Nvidia’s results in their stride, with STMicro, ASML and ASM International up between 0.7%-1.3%.
Drax to pay £25m fine for inaccurate data on source of wood for controversial generator
The power generator Drax has agreed to pay £25m after the energy industry regulator found submitted inaccurate sustainability data on the sourcing of wood pellets used as its massive plant in North Yorkshire.
The investigation by Ofgem, which was launched last year, concluded that there was “an absence of adequate data governance and controls in place” on the sourcing of wood from Canada between April 2021 the end of March 2022.
Drax, which is the recipient of significant UK government subsidies, has faced continued scrutiny over the sustainability of its wood-burning power generation business.
Around 80% of the wood pellets used in Drax’s biomass plants are sourced from forests in the US and Canada.
Ofgem said there was no evidence to suggest that that the breach was deliberate, saying instead that it was “technical in nature”.
The regulator also said the data ultimately fell outside of the criteria used to determine the amount of public funding that Drax receives and would not impact its government subsidies. At least 70% of biomass has to come from sustainable sources in order for companies to receive government funding.
Drax has agreed to pay £25m towards a voluntary redress scheme to settle the matter, and resubmit its profiling data for Canadian-sourced wood pellets. It will also hire an independent auditor to produce data for its annual biomass report for the year to March.
However, Ofgem’s findings are likely to fuel further criticism around government support for Drax’s and its biomass operations, which have increasingly come under scrutiny from MPs and environmental campaigners.
HSBC shuffles bosses ahead of new chief executive's start
HSBC’s new boss Georges Elhedery will not start his new job officially until Monday, but it looks like the customary reshuffle at the top under a new chief executive is already underway.
Elhedery, who is still technically the UK-listed bank’s chief financial officer until then, is replacing Noel Quinn, who in April made the unexpected announcement that he was stepping down after an “intense” five years in charge.
Here is what we have learned today about the jostling behind the scenes (via a statement from the bank reported Reuters). The resignation of Nuno Matos in particular is interesting: he was seen as a potential candidate to take the top chief executive job.
Out:
HSBC chief executive of wealth and personal banking Nuno Matos will resign.
John Hinshaw, HSBC group chief operating officer, has also decided to leave the group to pursue other opportunities.
In:
Stuart Riley is appointed to the expanded HSBC global chief information officer role, which will assume responsibility for data and innovation.
Suzy White, HSBC global banking and markets chief operating officer, has been appointed global chief operating officer on an interim basis.
European stock markets are basically unmoved this morning, despite the money on the move in the US after Nvidia’s results.
A reminder that we are still just about in August, when much of the investment world takes a holiday. Of course, that can lead to dramatic volatility as we saw this month.
Today we appear to have the opposite though. In a rare occurrence, none of the major stock market indices have stirred. Here are the opening snaps from Reuters:
EUROPE’S STOXX 600 FLAT
BRITAIN’S FTSE 100 FLAT; GERMANY’S DAX FLAT
FRANCE’S CAC 40 FLAT; SPAIN’S IBEX FLAT
EURO STOXX INDEX FLAT; EURO ZONE BLUE CHIPS FLAT
Nvidia shares down 7% pre-market; UK car production falls 14%
Good morning, and welcome to our live coverage of business, economics and financial markets.
Nvidia shares are down 7% in after-hours trading despite actually beating analyst expectations for sales and profits.
The Silicon Valley chip designer reported sales more than doubling to $30bn (£23bn), up 122% in the second quarter compared with last year. Analysts had expected sales of $28.7bn on average.
Jensen Huang, founder and chief executive of Nvidia, said anticipation for its forthcoming Blackwell chips – which squeeze in 208bn transistors to carry out the calculations needed to train large language model – was “incredible”, and demand for its current range remained strong. He said:
Nvidia achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI.”
So how come shares fell after US trading hours when the company gave every signal that it believes it is still riding the crest of the artificial intelligence (AI) wave?
One might have been the lack of detail on delays that hit Blackwell chip production – although the company suggested those manufacturing issues had been sorted by TSMC, the Taiwan semiconductor manufacturer that builds Nvidia’s most advanced chips.
But another may be that the company’s growth has been so enormous that it needs to not just beat expectations to rise further, but smash them.
Henry Allen, a strategist at Deutsche Bank, said:
Although the results slightly beat expectations, their share price was down around -7% in after-hours trading, partly because it fell short of some estimates that had been looking for an even stronger release. For instance, the revenue outperformance was the smallest relative to expectations in six quarters, so this wasn’t the sort of massive beat that Nvidia has often reported over the last 18 months.
At the same time, the Q3 revenue guidance came in a touch above the average estimate ($32.5bn vs $31.9bn est.) but still well within the range of analysts’ views.
UK car production slips as carmakers prepare for new models
Back in the UK, car manufacturing numbers are down, but only as companies switch production to new models, according to the Society of Motor Manufacturers and Traders (SMMT).
The lobby group said that production dropped 14.4% in July “as model changeovers and temporary supply chain constraints restrict output”.
One of those new models is likely to be the electric Range Rover, the first electric car to be built in Britain by Jaguar Land Rover, the UK’s biggest manufacturer. Its only other electric model, the Jaguar I-Pace, is built by a contract manufacturer in Austria.
The industry produced 482,000 cars in the first seven months of the year, down 9% from 2023. The SMMT is hoping that annual production will rise above 1m cars next year as new models start production.
Mike Hawes, chief executive of the SMMT, said
Following significant growth last year, some readjustment in output was to be expected. Indeed, an ongoing degree of volatility is likely as the industry restructures to transition to zero emission vehicle production.
As the billions already committed to new models start to deliver a return, volume growth will resume, providing we seize every opportunity to enhance our global competitiveness.
The agenda
10am BST: Eurozone consumer confidence (August; -13 point; consensus: -13.4)
10:15am BST: European Central Bank speech by chief economist Philip Lane in Frankfurt
1pm BST: Germany inflation rate (August; prev.:2.3% annualised; cons.: 2.1%)
1:30pm BST: US GDP second estimate (second quarter; prev.: 1.4% annualised; cons.: 2.8%)
