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Europe Energy Woe, U.S. GDP Revision, Nvidia Warning - What's Moving Markets

By Geoffrey Smith -- Europe's energy crisis is becoming an industrial crisis. The U.S. releases revised second quarter GDP figures and - more up-to-date - weekly jobless claims. China's government tops up its stimulus package and Nvidia is hit by a new reduction to its sales guidance. Here's what you need to know in financial markets on Thursday, 25th August.

1. Europe’s energy crisis won't end

Europe’s energy crisis is turning into an industrial crisis. Last week, some of the biggest zinc and aluminum smelters on the continent shut down due to high power prices. This week, the latest surge in gas prices has forced fertilizer makers in Norway, the U.K., and Poland to idle capacity, unable to pass those prices on to their farming customer base.

A shortage of fertilizers threatens to put downward pressure on crop yields next year, which will keep food prices higher than they would have been otherwise.

Benchmark European gas prices topped 300 euros a megawatt-hour earlier Thursday. At those levels, Germany – Europe’s largest economy – would have to spend over 8% of its GDP to sustain its gas habit. German GDP eked out a 0.1% gain in the second quarter but Ifo’s monthly business survey confirmed it’s on track for a drop of around 0.5% in the current quarter.

To make matters worse, Électricité de France (EPA:EDF) said it would have to delay the restart of several reactors which have been closed for maintenance this year, prolonging the squeeze on electricity prices.

2. Jobless claims, GDP revision due; Bostic warns of possible 75 bp hike

The U.S. will release revised figures for second quarter gross domestic product at 08:30 ET, with analysts expecting a small upward revision that will do little to change the broader narrative of an economy being deliberately slowed down by tighter monetary policy. The price components of the data are likewise too far in the past to affect the current outlook meaningfully.

Of more interest will be the weekly jobless claims numbers, whose surprising strength last week supported arguments that the economy can withstand higher interest rates easily enough.

The market remains focused on Federal Reserve Chair Jerome Powell’s keynote speech at Jackson Hole on Friday, amid expectations that the next interest rate hike will be only 50 basis points, after two successive 75 bp hikes. Atlanta Fed President Raphael Bostic, however, told The Wall Street Journal in an interview that a 75 basis point increase may be appropriate if the economic data stay strong.

3. Stocks set to build on modest gains; Nvidia hit by sales warning

U.S. stock markets are set to open higher again, building on Wednesday’s moderate gains, helped by the positive outlook from software group Snowflake (NYSE:SNOW) late on Thursday. Enterprise software makers tend to be seen as proxies for business investment, which appears to be holding up better than feared. Workday (NASDAQ:WDAY), another company in that segment, reports after hours.

By 06:15 ET (10:15 GMT), Dow Jones futures were up 86 points, or 0.3%, while S&P 500 futures were up 0.5% and Nasdaq 100 futures were up 0.6%.

The Nasdaq’s bounce was all the more conspicuous given the disappointment from chipmaker Nvidia (NASDAQ:NVDA), which again cut its outlook on Thursday due largely to the slowdown in demand for gaming chips. Nvidia expects sales in the current quarter to be down 17% on the year.

Elsewhere, discount stores Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG) will report results, casting light on how much pressure inflation is putting on them and their customers.

4. China stimulates, Korea tightens

The Chinese government topped up its economic stimulus to 1 trillion yuan (around $150 billion), trying to restore an economy ravaged by drought and COVID-19 restrictions.

The 19-point plan released by the State Council focused largely on debt-financed infrastructure spending, a strategy that has shown diminishing returns as the real estate sector buckles under its enormous debt load. Chinese stocks reacted with modest gains, while Chinese bond yields rose, pulling the yuan up from the two-year low that it hit against the dollar on Wednesday.

China is heading in the opposite direction on policy to most of the rest of the world. Elsewhere overnight, the Bank of Korea raised its key rate again, by 25 basis points to 2.5%. The won, which fell to a 13-year low against the dollar on Tuesday, strengthened by 0.4%.

5. Oil lifted by China measures, U.S. inventories

Crude oil prices touched a three-week high overnight as the Chinese stimulus package lent support to the global demand outlook. Prices were also supported after the U.S.

government confirmed a bigger than expected drop in crude inventories last week.

The usual seasonal bid from the approach of the U.S. hurricane season is also starting to loom.

By 06:30 ET, U.S. crude futures were up 0.1% at $94.98 a barrel, while Brent crude was up 0.3% at $101.52 a barrel. Natural gas futures, which were driven to 14-year highs earlier this week by LNG demand from Europe, eased a little further to +6%.


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