Trading Day: Tech on a tear, attention Fed chair

By Jamie McGeever

ORLANDO, Florida, Aug 27 (Reuters) - Another bumper earnings report ‌and outlook from chipmaking giant Nvidia ​boosted tech stocks ​on Thursday, which was enough to lift the benchmark U.S. indexes even though every other sector fell, as investors digested inflation warnings from several Fed officials ahead of Fed chief Kevin Warsh's Jackson Hole address on Friday.

In my column today, I look at how the U.S. public finances stack up against the ‌private sector's. Amid all the teeth-gnashing around the federal deficit and soaring debt, businesses and households have rarely been in better health.

If you ⁠have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

1. Fed's Warsh faces challenge whether inflation is a problem or not

2. Bessent, Warsh diverge on ‌who should set the price of money

3. Monetarist ‌resurrection, or timely rethink of inflation targeting?: Mike Dolan

4. Nvidia forecasts 70% sales growth next year, signals AI spending boom has years left to run

5. China's industrial profit growth cools as AI-linked sectors outpace

Today's Key Market Moves

• STOCKS: South Korea +1.5%, China +1%. Europe -0.7%, UK -0.8%, biggest falls in a month. S&P 500 +0.7%, Nasdaq +1.6%.

• SECTORS/SHARES: 1 sector on the S&P 500 ​rose, 10 fell. Tech +3.4%, healthcare and consumer sectors -1%. Nvidia +9%, Salesforce +23%, CrowdStrike +20%. Moderna -5%, Best Buy -4%.

• FX: Dollar flat, biggest G10 climber is Aussie dollar. Colombian peso -1% again, now -4% this week. Bitcoin back above $80,000.

• BONDS: Treasury yields little-changed, 7-year U.S. auction so-so. French yields tick higher.

• COMMODITIES/METALS: Oil +2%, gold holds above $4,600/oz.

Today's Talking Points:

Communication time

The waiting is almost over. Fed Chair Kevin Warsh ⁠makes his keynote speech in Jackson Hole on Friday morning, with the investment world focused on what he says about inflation and, specifically, how he intends to get it back down to target. There's a chance he will disappoint expectations, ​nodding instead to broader issues like the five "task forces" he has set up to overhaul the Fed's wider operational framework.

But it's an open goal to bring down long bond yields, and restore some of the credibility he has lost in his first three months in the ​hot seat. His press conference after the July FOMC meeting, where he equivocated over his commitment to ‌the Fed's 2% inflation goal, was not a success. One of his five task forces is about "communication". A good start would be sending a clear, unequivocal message on price stability.

Le spread

Much of the recent focus in global bond markets has understandably been centered on Washington, but Paris ⁠is — or should be — on investors' radar too. France's fragile finances face a critical few months, with the annual budget battle this year preceding next spring's presidential election. At this early juncture, the frontrunners are hard-left and hard-right candidates promising to spend big.

France's debt is at a record high, its bond yields are higher than Italy's, and the yield spread over German debt could soon rise over 100 basis points (it ⁠was close to 50 bps six months ago, just before the U.S.-Israeli war on Iran). France's fiscal worries often flare up, but usually dissipate quickly enough. This time might be different — the global backdrop is ​more challenging, with bond markets across the industrialized world also under pressure.

Buy the chip!

Nvidia reported, Nvidia delivered. Despite an initial wobble on worries that gross margins next year are forecast to dip a little, shares in the world's most valuable company quickly rebounded, and on Thursday notched their highest-ever close. The rise lifted the tech complex and Wall Street more broadly.

Have AI bubble fears been greatly exaggerated, or are ‌they just inflating further? Take your pick. Nvidia's revenue growth and forecasts are astonishing. Some analysts are speculating that annual revenue could reach $1 trillion in a couple of years. But that bet relies on companies across the economy — not just tech — splurging all their free cash ‌flows into a second AI capex boom in the coming years, says Bob Elliott at Unlimited Funds. It's a high bar.

What could move markets tomorrow?

• Japan Tokyo CPI inflation (August)

• Euro zone consumer, business, industrial sentiment (August)

• ⁠Canada GDP (Q2)

• U.S. University of Michigan inflation expectations, consumer sentiment (August, final)

• U.S. ‌Fed Chair Kevin Warsh delivers keynote address at Kansas ​City Fed's Jackson Hole symposium

Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from ‌bias.

(Reporting by Jamie McGeever;)

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