Nasdaq Performance: Tech Stocks Under Pressure

Dow Jones Industrial Average: Mixed Signals

Nvidia's Influence: A Key Market Mover

Broader Market Implications

Conclusion

FAQs

Q1: What caused the tech stock sell-off today?

Q2: Why did Nvidia's stock pull back despite strong earnings?

Q3: How did the Dow perform compared to the Nasdaq today?

The U.S. Treasury has a lot of debt to place in the next year, but its active management of the maturity profile shows why the oft-heralded U.S. debt "crisis" is unlikely to occur anytime soon.

Treasury funding math currently is quite daunting, with more than half a trillion dollars of bills and bonds under the hammer this week alone.

But almost three-quarters of this week's deluge is in bills, which mature in 12 months or less, and these will roll over at progressively lower rates if U.S. interest rates decline as expected.

While huge weekly Treasury sales are by now familiar, many investors continue to circulate notes expressing concern about the mounting levels of government debt that need to find willing buyers.

US 10-year 'term premium' stays negative

Torsten Slok, the chief economist at Apollo Global Management, is the latest to warn of potential danger ahead with his "Top 10" list of Treasury factoids.

Slok notes that $9 trillion of government debt is maturing over the next year, debt servicing costs have hit 12% of government outlays, trillion-dollar-plus deficits are projected over the next decade, and the debt/GDP ratio is expected to double to 200% by mid-century.

His conclusion is simple: Watch out for bumpy auctions, possible credit rating downgrades, and the persistent threat that long-term bond investors will begin to demand a hefty "term premium" to hold long-dated Treasuries.

Apollo chart on US Treasuries maturing over the next year

But by front-loading the maturity profile of the debt, the Treasury is revealing one of its main tools to circumvent a debt crunch over the coming year or more.

Even though the weighted average maturity of the entire marketable debt stock is still above pre-pandemic levels at close to six years, bills maturing in one year or less make up 22% of the total - well up from the 10%-15% seen both 18 months ago and typical for much of the decade before COVID-19 hit.

With policy rates currently more than 5%, that short-term issuance will be costly.

But the picture changes considerably if the Federal Reserve moves into rate-cutting mode next month and lops more than 200 basis points off rates over the next year, as the futures markets currently expect.

Average maturity of Treasuries ebbing but remains above 30-year mean

BUILDING BILLS

Does this mean the Treasury is deliberately distorting the U.S. government debt market? Analysts at CrossBorder Capital argue the Treasury is doing just that through a policy of "active duration management" (ADM) designed to suppress yields.

In a piece headlined "US Treasury Bribes World's Smartest Investor," CrossBorder models what that bill-heavy maturity profile might mean for debt tenors currently receiving less attention, such as the benchmark 10-year Treasury note.

The analysts compare the yield on the latter with the much-higher yield on equivalent U.S. mortgage-linked bonds, adjusted for interest rate sensitivity and the related "convexity."

Their model shows a whopping 100-basis-point-plus gap between the two, which they suggest is wholly due to this unofficial ADM policy.

CrossBorder says a funding discount of that size knocks a full 35 percentage points off the U.S. 2050 debt/GDP ratio forecast.

Apollo chart on US debt servicing costs as a share of govt outlays

So win-win? Perhaps not entirely.

The negatives are less obvious, but no less meaningful.

If 10-year yields are suppressed to the degree suggested, then that's one reason why the shape of the yield curve has been persistently inverted for more than two years without the recession many say that predicts actually unfolding.

But there are costs to losing such a useful tool in forecasting the future course of the economy and inflation.

Also, further reduction in the average maturity profile of the entire debt stock from here makes rollover risk a greater concern. Periodic "accidents," such as debt ceiling rows or temporary default threats in the bill market, could have a disproportionate impact if exposure to bills keeps rising.

And even though continuing to jam the bill markets with new paper may reduce debt servicing costs in the near term, what happens when the Fed cycle turns again or the economy truly is in a new world in which higher inflation and elevated rates persist?

That risk is especially pertinent given current political realities. Absent a shift in fiscal policy over the coming years, the U.S. debt profile will eventually require some painful adjustments.

And, ironically, the lack of market ructions in the interim could actually lessen the chance of political action to rein in the deficits and debt, which will only compound the problem.

But what's also clear is government debt managers have multiple tools and sleights of hand to help them navigate this current period without generating the sort of crisis so many forecast.

Whether such moves are just temporary stopgaps is another question. But, given recent history, it would seem dangerous to bet that the Treasury and Fed will fail to keep this particular show playing for the foreseeable future.

Source: The edge markets

(Aug 28): Saudi Arabia suggested it could make a bid to host the Olympics as the desert kingdom forges ahead with a massive economic overhaul that’s seen it invest vast sums of money into sports.

“We as a country are setting up for doing more and more, and I think the Olympics is a logical step,” said Prince Faisal bin Bandar bin Sultan Al Saud, the chairman of the Saudi Esports Federation. “But [it's] when we are ready.”

The prince spoke on the sidelines of the closing ceremony for the first ever Esports World Cup, which was held in Riyadh and featured a record prize pot for the industry at US$60 million (RM260.81 million).

Saudi Arabia’s potential interest in eventually hosting the Olympic games comes as the Gulf nation grows its portfolio of sports events, including the inaugural Esports Olympics in 2025. Riyadh clinched a 12-year deal with the International Olympic Committee in July to host that event, signaling a relationship already exists. The Saudis are also due to host the Asian Winter Games in 2029, and is on the brink of hosting the Fifa World Cup in 2034.

Crown Prince Mohammed bin Salman has put sports, entertainment and tourism at the centre of his multi-trillion-dollar agenda to transform Saudi Arabia’s economy into a diverse powerhouse that relies less on crude oil. The kingdom also sees such industries as critical to improving the quality of life for local Saudis, many of whom are under the age of 30.

The Olympics, which recently wrapped up its summer edition in Paris, will next be hosted by Italy, the US, France and Australia from 2026 to 2032. It has been reported that Egypt and Qatar are among countries in the Middle East that could bid for events happening after that. 

Source: The edge markets

August Candle Shows Dragonfly Doji

Bitcoin Bulls About To Take Over?

Source: NewsBTC

Key points:

Macro:

After a period of relative calm during the Olympics, the risks weighing on French stocks are again on the rise.

The CAC 40 Index is trailing the continent’s major markets, up less than 1% this year even as benchmarks including Italy’s FTSE MIB, Spain’s IBEX and Germany’s DAX post double-digit returns. Political gridlock is dragging on in Paris, fuelling concern that the country will fail to tackle its budget and economic challenges. French bonds and stocks are struggling and the cost of insurance against default is rising.

“The risk of a French fiscal crisis in the near-term is real,” said Charles-Henry Monchau, chief investment officer at Banque SYZ in Geneva. “French assets thus need to be traded cautiously in the coming weeks.”

Monchau added that there’s an elevated risk of social unrest because of the political fight over the formation of a new government, but the core scenario of a centre-right coalition would be rather positive for French bonds and stocks.

President Emmanuel Macron, who shocked markets by ordering a snap election after his party lost European Parliament elections in June, has been meeting with political representatives over the past days to find the next prime minister. But talks — already delayed by the Olympics — are difficult as parties ranging from the far-left to centre-right vie for power.  

“Political discussions drag on and political uncertainty grows,” CIC Market Solutions economist Benoit Rodriguez wrote in a note on Tuesday. “Given the division of the National Assembly into three blocs, uncertainty over the trajectory of public finances remains.”

Rodriguez notes that the government will need to table the 2025 budget bill in parliament by Oct 1. It will also have to submit a multi-annual fiscal plan to the European Commission on Sept 20 as part of an excessive deficit procedure initiated against France. Regardless of who will run the next cabinet, the diverse coalition is set to have limited room to reduce the budget deficit.Besides politics, French earnings have also turned into headwinds. In fact, global demand — which is responsible for the majority of revenues of French firms — has been an even bigger drag than politics, with luxury goods and consumer stocks turning into major underperformers. LVMH and L’Oreal SA are mostly responsible for the CAC’s recent weakness, due to their reliance on demand from China. That said, profit trends may be stabilising. 

Luxury companies reported flat revenue in the second quarter and their first-half profit margin implies a 12% year-on-year earnings decline, according to Bank of America Corp analysts, including Ashley Wallace. “2024 consensus estimates have come down 5% since May, and share prices underperformed the market by 9% over the same time period,” she wrote in a note. 

One silver lining comes from positioning, which has become less negative on France in the past two months, according to the Bank of America fund manager survey, with the proportion of investors looking to underweight the country dropping. Yet, it remains a net underweight for asset managers, the survey shows. 

Since the snap election announcement, the valuation premium that French stocks had enjoyed all of last year over other European markets has vanished. While risks for the broader European bloc are now more balanced, France remains a specific case. Domestic stocks — including banks and other stocks sensitive to policy decisions — are also still trailing. 

“The political risk is still there for French equities but I think the market considers it localised instead of a full-blown political crisis,” said Bloomberg Intelligence analyst Kaidi Meng. “The one sector still feeling the burn of the French election is the French banks,” she said, while, luxury goods and other consumer-related firms are weighed down by “demand headwinds”.

Source: The edge markets