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

Good morning. Anticipation over Nvidia earnings reaches a fever pitch, the Fed releases its latest minutes and HSBC shares slump. Here’s wha [View in browser]( [Bloomberg]( Good morning. Anticipation over Nvidia earnings reaches a fever pitch, the Fed releases its latest minutes and HSBC shares slump. Here’s what’s moving markets. — [David Goodman]( Nvidia in Focus The [“most important stock on planet earth](” -- at least according to Goldman Sachs’ trading desk -- is the main [topic of conversation]( in markets today, as investors of all types await earnings from AI poster-child Nvidia. Investors have [almost $200 billion in market value](riding on the outcome, with options positioning implying about a 11% move in either direction following the results. A move like that could have big consequences. The company is at the heart of the AI revolution and a potential bellweather for the short-term outlook for stocks. It boasts the best performance in the S&P 500 this year after more than tripling in 2023, and is responsible for a third of the benchmark’s year-to-date gain. Fed Minutes The huge focus on Nvidia means the Federal Reserve is in the rare position of playing second fiddle today. Policy makers are set to release of minutes of their last policy meeting, which might show how confident they are in the need for rate cuts in 2024. Bloomberg Economics’ Anna Wong says that “even though inflation and jobs data since the meeting have surprised strongly to the upside, we expect the minutes will suggest officials are likely to discount those prints heavily.’’ Wednesday also sees remarks from a trio of Fed speakers —  Raphael Bostic, Thomas Barkin and Susan Collins. HSBC Slumps HSBC shares slumped by the [most in more than year in London]( after the firm reported that [fourth-quarter profit fell 80%]( after taking unexpected charges on holdings in a Chinese bank and from selling its French retail operations. While rising interest rates globally boosted HSBC’s full-year earnings to a record, profit fell to $1 billion in the final three months of last year from $5.05 billion in the year-earlier period. “That has no impact on our capital position of any significance, it does not prohibit distribution,” Chief Executive Officer Noel Quinn told Bloomberg Television. Stocks Dip The disappointing results from HSBC, along with weak earnings from [commodities trader Glencore]( and [miner Rio Tinto](, took a toll on stocks on Wednesday. [US equity futures dipped]( along with European shares while cybersecurity company Palo Alto Networks [plunged 22%]( in premarket trading— setting it up for the biggest decline since March 2017 -- after the company cut its annual revenue forecast, sparking concerns that customers are reigning in tech spending. Elsewhere, iron ore futures hit the lowest since October, while the 10-year Treasury yield and a gauge of the dollar were steady. China Tightens Grip on Stocks Chinese shares advanced after policymakers [took more steps]( to revive investor confidence in the nation’s $8.6 trillion stock market. The boost came as the nation’s two main stock exchanges vowed to tighten supervision of quantitative trading after freezing the accounts of a major fund for three days in an unusually harsh punishment. Furthermore, it also emerged on Wednesday, that China [banned major institutional investors]( from reducing equity holdings at the open and close of each trading day. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - [Aluminum, nickel surge]( as White House plans fresh sanctions on Russia. - London’s iconic BT Tower is being [sold to MCR Hotels for $347 million.]( - Boaz Weinstein returns to London with[$1.3 billion fund crusade.]( - Britain delivered the [biggest budget surplus on record](in January. - Saint Gobain offers to buy rival CSR [in $2.8 billion deal](. - John Authers warns against declaring the [death of the Yale model.]( - “Hotel California” trial centers on [handwritten Eagles lyrics](. And finally, here's what Tracy’s interested in this morning How do you spot a credit bubble? The amount of second lien loans being taken out by companies can be a decent indicator. These loans are generally considered riskier for investors, since the end up behind other creditors when it comes to lining up for a company's assets in the event of bankruptcy. And issuance of second liens has often coincided with eras of irrational exuberance; issuance jumped in the frothy years just before the 2008 financial crisis, again in the mid-2010s during the leveraged loan boom, and once again in the low interest rate years immediately after the pandemic. Now, however, the amount of second liens being issued has dwindled to practically nothing. In fact, last week saw the first second lien to price in the market since July of 2022. Meanwhile, the proportion of second liens outstanding as a proportion of the total leveraged loan market is at the lowest level since the creation of the benchmark Leveraged Loan Index, according to Barclays analysts led by Bradley Rogoff. So what gives? Why aren't more companies reaching for second-liens in a market where risk premiums are close to an all-time low and we're once again talking about credit being '[priced for perfection'](? Does the lack of second liens suggest that there's less risk in the system overall? Of course not. It's a truism of markets that like energy, risk can neither be created nor destroyed, it just moves around. And in this case, it seems like a decent amount of it has moved to private credit. The Barclays analysts cite two developments behind the lack of new second liens. First, there's the popularity of [the unitranche deal]( (which combines aspects of first- and second-lien issuance, and has been more appealing to investors in recent years). And then, of course, there's the fact that more and more potential second-lien deals are now being struck between companies and direct lenders, instead of sold into the public market. In fact, Barclays estimates that about $100 billion worth of would-be second lien loans have been cannibalized by private credit since 2015. "As long as private credit has dry powder to deploy, the inception of the unitranche, along with a large amount of private credit capital dedicated to subordinated lending, makes it quite difficult for the [second-lien broadly-syndicated loan] market to return to what it once was," they conclude. Tracy Alloway is the co-host of Bloomberg’s Odd Lots podcast. Follow her on X [@tracyalloway]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Like getting this newsletter? 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