Five Things You Need to Know to Start Your Day: Americas

Good morning. US stocks are poised for small gains as markets look past Nvidia’s disappointing sales forecast. Attention is now turning back [View in browser]( [Bloomberg]( Good morning. US stocks are poised for small gains as markets look past Nvidia’s disappointing sales forecast. Attention is now turning back to the macro outlook and data, which could indicate the scope of the Fed’s expected rate cut next month. And iron ore’s rally prompts a warning. Here’s what markets are talking about. — [Morwenna Coniam](. Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Taking stock [Global equities]( steadied and US stocks are poised for small gains as markets attempt to look past Nvidia’s disappointing sales forecast and turn their focus to macro drivers. Nvidia shares dropped in US premarket trading after its underwhelming guidance hinted at a cooling in the artificial-intelligence frenzy, though futures on the Nasdaq 100 and the S&P 500 indexes erased earlier losses. Treasury 10-year yields slipped, while the dollar is headed for its biggest monthly decline this year. Nvidia [Nvidia’s quarterly report]( — the most anticipated part of the tech industry’s earnings season — met or beat analysts’ estimates on nearly every measure. But Nvidia investors have grown accustomed to blowout quarters, and the latest numbers didn’t qualify. Of concern to investors was the fact that Nvidia’s next big cash cow — the new Blackwell processor lineup — has proved more challenging to manufacture than anticipated. The product is the next generation of the company’s dominant artificial intelligence processor. Back to macro Still, with the earnings season officially at an end, focus is turning back to the macro landscape. Money markets are wagering on 100 basis points worth of rate cuts by year-end but uncertainty remains as to whether the Federal Reserve will ease policy by a quarter-point next month or deliver a larger 50 basis-point cut. Atlanta Fed President Raphael Bostic said it “may be time to cut,” but he’s still looking for additional data to support lowering rates next month. Key to that will be a reading of the Fed’s preferred inflation gauge — core PCE — due Friday. Iron ore warning Despite a barrage of downbeat commentary on prospects for Chinese demand, iron ore has powered higher, jumping about 10% in 10 days to breach $100 a ton. That’s prompting the official journal of China’s metals industry to pen a long article on why the [gains are overdone](. The advance is piling pressure on China’s struggling steelmakers, according to the state-affiliated China Metallurgical News, which called the spike “irrational.” Plentiful supply, weak demand, high inventories, and low mining costs should continue to weigh on the commodity in the rest of 2024, it said. China talks Elsewhere, traders are watching [one-on-one talks between Chinese President Xi Jinping]( and White House official Jake Sullivan for signs of improving trade relations. The meeting comes as Sullivan spearheads Washington’s global campaign to block China’s access to cutting-edge chips. Beijing has accused America of trying to contain its economic rise with tariffs and sanctions that Biden says are aimed at ensuring national security. The world’s largest economies are trying to put guardrails on their relationship as Beijing braces for a turbulent period in US politics where the only guarantee is another tough-on-China president What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - How Ken Leech’s free rein at Wamco[backfired]( for Franklin Resources - [Telegram CEO]( charged over alleged criminal use of app - The UK government is [under pressure from all sides]( over possible tax hikes - China’s 5%[growth target faces rising doubt]( UBS cuts outlook - This mining billionaire is taking aim [at work-from-home culture]( And finally, here's what Joe’s interested in this morning Here is a chart of the Fed balance sheet over the last 20 years. You could tell a pretty simple story along the lines of: During the Great Financial Crisis, the Fed engaged in Quantitative Easing in order to stimulate the economy again. The balance sheet grew until the middle of the decade, at which point the Fed started to wind down its holdings. Then we got the Covid crisis, and the Fed started doing QE again, before beginning its wind down in early 2022. That’s the story you could tell, but it’s not precisely correct. At least from the Fed’s perspective, that straight line up in 2020 didn’t represent the same kind of operation as the 2009 variety. Rather than attempting to stimulate economic activity, this was about intervening in a big way to stabilize the US Treasury market in the middle of March 2020, when volatility got so extreme that the whole thing looked like it was going to blow up in some way. It all kind of looks the same on the chart, but the operations had different goals and measures for what constituted success. [On yesterday’s episode of the Odd Lots podcast]( Tracy Alloway and I sat down with University of Chicago Booth professor Anil Kashyap, who was one of the presenters this year in Jackson Hole. The title of his talk at the conference was Monetary Policy Implications of Market Marker of Last Resort Operations [and you can read his remarks here](. The basic gist is: How can the Fed make more clear when it is expanding its balance sheet for purposes of stimulating the economy vs. expanding its balance sheet for purposes of stabilizing a given market. This is a particularly important thing to think about at a time when the primary macro task has been fighting inflation. And in fact, if you look at the chart, you can see there’s a little jump in the size of the balance sheet in March 2023 when Silicon Valley Bank exploded and the Fed needed to provide the market with liquidity while it was still in inflation-fighting mode. So one thing Anil proposes is the establishment at the Fed of what already exists at the Bank of England, which is some kind of Financial Policy Committee or a Purchases Facility Committee that is distinct from the regular FOMC. So the FOMC’s job would be focused on monetary policy, and the PFC (which may include FOMC members) would focus on addressing a moment where markets break. As such you could, say, have the FOMC continue to focus (as normal) on its dual mandates, while elsewhere the balance sheet could be used for other purposes. Of course, some might look at this and say it’s nonsense to separate the two. Asset purchases are asset purchases. Liquidity is liquidity. There’s no ultimate end difference for the market. And if you just look at things mathematically, and start your analysis from the size or direction of the balance sheet, then that’s a legitimate counterpoint. On the other hand, one way of thinking about QE (particularly of the 2009 variety) is that it’s a form of forward guidance. If the Fed says “we’re going to buy $50 billion of bonds every month and not stop for the next two years” then the market can hear that as “we're not going to raise rates for the next two years.” Technically you can buy bonds and raise rates at the same time, but the commitment to make regular purchases is seen as a bolstering of the message on rate policy. And so one advantage of having market-making operations conducted outside of the regular FOMC is that the market can look at the purchases and recognize that they offer no signal with respect to rate policy. That link becomes formally severed. Anyway, I highly recommend reading Anil's [paper]( and his accompanying [slide deck](. You can find our episode on [Apple]( [Spotify]( or elsewhere. Follow Bloomberg's Joe Weisenthal on X [@TheStalwart]( [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Stay updated by saving our new email address Our email address is changing, which means you’ll be receiving this newsletter from noreply@news.bloomberg.com. Here’s how to update your contacts to ensure you continue receiving it: - Gmail: Open an email from Bloomberg, click the three dots in the top right corner, select “Mark as important.” - Outlook: Right-click on Bloomberg’s email address and select “Add to Outlook Contacts.” - Apple Mail: Open the email, click on Bloomberg’s email address, and select “Add to Contacts” or “Add to VIPs.” - Yahoo Mail: Open an email from Bloomberg, hover over the email address, click “Add to Contacts.” Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. 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