AI is back in favor, but Fed officials talk about hiking

Good morning. Nvidia took a weight off the market. It guided to roughly 70% revenue growth ahead, well above expectations, and its shares jumped more than 7% in premarket trading. Nasdaq futures rose nearly 1% and Japan's Nikkei gained on chip stocks. Salesforce and CrowdStrike also reported well, so the rally looks to be spreading from chips to software.

What the market really fears, though, is bonds, not stocks. Yesterday the Treasury sold 44 billion dollars of seven-year notes at 4.512%, the highest yield at auction since December 2024. Bonds of heavily indebted countries such as France, Italy, Britain and Japan are being sold even harder than Treasuries. As one headline put it, bond yields, not the stock volatility index, have become the market's fear gauge.

The tone from Fed officials has changed as well. Cleveland Fed President Hammack said plainly that now is the time to raise rates, and Kansas City's Schmid called inflation sticky and left a September 16 hike on the table. Boston's Collins, usually seen as moderate, said a hike would be justified if inflation disappoints. There is pushback: others say soft jobs and retail sales mean there is no need to rush.

It all hinges on Chair Warsh's first Jackson Hole speech, due Friday US time. The Treasury's moves to hold down yields have added a fight over who sets the price of money. Investors are, if anything, bracing to be disappointed.