This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Traders work on the floor of the New York Stock Exchange during morning trading on Oct. 4, 2023.
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The S&P 500 closed above 5,500 for the first time as Fed Chair Jerome Powell said the central bank had made progress on inflation. The S&P 500 and the tech-heavy Nasdaq Composite closed at record highs, with Tesla soaring 10% after sales fell less than expected. The Dow Jones Industrial Average added 162 points. The yield on the 10-year Treasury slipped as Powell indicated that the bank needs more time before cutting rates. U.S. oil prices dropped back from two-month highs.
Tesla soars
Tesla‘s shares surged 10.2% after the EV maker beat second-quarter production and delivery expectations. However, total deliveries still fell 4.8% year-over-year, though they rose 14.8% from the first quarter. The decline comes as Tesla faces increased competition, particularly in China, and an aging vehicle lineup. To stimulate sales, Tesla has offered various discounts and incentives, such as zero-interest loans for Model 3 and Model Y purchases in China.
Inflation progress
Powell said the central bank had made “quite a bit of progress” on inflation over the past year but said he wants to see more before being confident enough to start cutting interest rates. “The last [inflation] reading and the one before it to a lesser extent, suggest that we are getting back on the disinflationary path,” Powell said at a central banking forum in Sintra, Portugal. “We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”
Paramount bid
Shares of Paramount Global surged 8% in extended trading after David Ellison’s Skydance and Shari Redstone’s National Amusements reached a preliminary agreement to merge with Paramount. This deal resuscitates a previously unsuccessful attempt, but Redstone will receive a reduced payout of $1.75 billion, according to sources familiar with the matter. The other financial terms remain unchanged: Skydance will pay $4.5 billion for half of Paramount’s controlling shares and contribute $1.5 billion in cash to Paramount’s balance sheet.
Asian markets mostly higher
Mainland China’s CSI 300 slipped 0.14% after a business activity survey expanded at its slowest pace since October 2023. Other markets in the Asia-Pacific region rose after Powell’s comments. Japan’s export-heavy Nikkei 225 rose 1%, South Korea’s Kospi gained 0.42%, Hong Kong’s Hang Seng index climbed 1.18% and Australia’s S&P/ASX 200 inched up 0.09%.
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The bottom line
Before this week’s rally in Tesla, the company’s stock price had plunged 20% so far this year, lagging among megacap stocks. Tuesday’s spike came as Tesla beat Wall Street’s delivery and production estimates. However, doubts persist about the sustainability of the stock’s rise, as Tesla’s aging lineup and increased competition force the EV maker to offer deep discounts to attract customers, especially in China.
GM, on the other hand, delivered some of its strongest quarterly numbers in more than three years.
Despite this positive sign, former Ford CEO Mark Fields believes the industry’s growth will slow this year as prices normalize. He warned CNBC of the consequences for automakers and the economy if consumers tighten their belts further:
“If consumers are not really stepping up, the automakers are going to face a very important decision. They’re either going to have to layer in more discounts to move those units to keep their plants running, or they’re going to have to take the difficult decision of reducing production, perhaps cutting shifts, which has a much bigger impact on the automakers and the economy.”
Mohamed El-Erian, Allianz’s chief economic advisor, told CNBC last week, “The household sector no longer has excessive savings or much debt capacity.” He called for the Fed to consider cutting rates in July.
While Fed Chair Jerome Powell said the central bank needs more confidence before cutting rates, Chicago Fed President Austan Goolsbee urged caution with tight monetary policy as the economy softens.
“I see some warning signs the real economy is weakening. It started from a very hot level, it’s weakened to something that’s still quite strong,” Goolsbee said in an interview with CNBC’s Sara Eisen. “But if you’re going to be this restrictive for too long, you’re going to have to start thinking about that real side of the economy.”
Well, Lazard’s chief strategist Ronald Temple expects the Fed to cut rates three times by the end of this year — that’s more than the market is currently factoring in.
— CNBC’s Jeff Cox, Alex Harring, Michael Wayland, Lora Kolodny, Spencer Kimball, Pia Singh, Sarah Min, Annika Kim Constantino, Ganesh Rao, Lillian Rizzo, Alex Sherman, Lim Hui Jie and Dylan Butts contributed to this report.