Slowdown Déjà Vu Rattles Global Markets

The sell-off goes global

September is known as the worst month of the year for stocks, and so far it’s living up to that reputation — especially for Nvidia shareholders.

Global stock markets are awash in red on Wednesday, as fears of an economic slowdown in the United States rattle investors ahead of Friday’s pivotal jobs report.

Here’s the latest:

• S&P 500 futures were down 0.3 percent in premarket trading.

• Stocks in Asia and Europe broadly sold off on Wednesday.

• Oil prices also fell as global growth concerns accelerated, and the price of Bitcoin dropped, nearing a one-month low.

That’s after a bad day for U.S. markets. The Nasdaq Composite fell 3.3 percent on Tuesday, with Nvidia leading the way: The chip maker plunged 9.5 percent, wiping $279 billion off its market cap — the biggest one-day decline for a U.S. stock ever — and dragging down the other artificial intelligence heavyweights that make up the so-called Magnificent Seven. (More on the chip maker’s woes below.)

The S&P 500 had its worst day since the Aug. 5 meltdown. Investors may be feeling some déjà vu. Last month’s rout was prompted in part by data that showed that the U.S. economy was losing steam. On Tuesday, weak manufacturing data renewed those concerns.

Economists still think a recession is unlikely, but a drip-drip of underwhelming growth data — especially in the labor market — has spooked some investors as the Fed weighs finally cutting interest rates. Up next: Investors will watch closely Wednesday’s JOLTS employment data, and the Fed’s Beige Book economic report.

The big focus is Friday’s payrolls report. Economists expect that employers added about 163,000 jobs in August. A softer number could compel the Fed “to cut by 50 basis points,” Andrew Hollenhorst, an economist at Citi, said on a webcast with clients on Tuesday. “We could have a lot of volatility on Friday, as we interpret the jobs report, and then as Fed officials interpret the jobs report,” he added.

The debate about the size of the Fed’s first cut has become a markets’ obsession. And it’s become a political issue, too, with Donald Trump warning the Fed to hold off on lowering borrowing costs until after Election Day, and progressive Democrats, including Senator Elizabeth Warren of Massachusetts, urging the central bank not to delay.

On Wednesday, futures traders gave the prospect for a 0.5 percentage point cut roughly one-in-three odds. That call could grow louder if Friday’s jobs numbers show the hiring slowdown worsening.

HERE’S WHAT’S HAPPENING

U.S. Steel threatens to close mills and relocate if the proposed Nippon Steel deal collapses. David Burritt, U.S. Steel’s C.E.O., told The Wall Street Journal that the company would shutter older facilities and probably move out of Pittsburgh if the $14 billion sale dies. Both presidential candidates have spoken out against the deal as they court blue-collar workers in the battleground state of Pennsylvania, saying that the company should be American-owned and operated.

Intel is reportedly in a standoff over federal chip subsidies. The chip maker is eligible for roughly $20 billion in loans and grants under the CHIPS Act to increase its domestic production of semiconductors, a key part of the Biden administration’s plans to make the U.S. more competitive in the industry. But negotiations have bogged down, Bloomberg reports, as a sales slump has forced Intel to cut jobs and consider spinning off its manufacturing unit.

Elon Musk’s Starlink will block access to X in Brazil. In a U-turn, the satellite internet provider said it would comply with an order by the country’s highest court to block Musk’s social network there amid a dispute over disinformation on the platform. But Musk again on Wednesday called for Alexandre de Moraes, the Supreme Court justice, to be impeached.

Ratings agencies settle their case with the S.E.C. over their use of messaging apps. Moody’s, S&P Global and Fitch agreed to pay a combined $48 million in fines over accusations that it violated the agency’s record-keeping rules. The payouts add to the billions Wall Street firms have had to pay for offenses involving their use of personal phones and apps like WhatsApp.

Nvidia’s bad day

Shares in Nvidia are down again in premarket trading on Wednesday, amid investor worries that the boom in artificial intelligence stocks is slowing down — and that the chip maker at the center of it could be the next target for an antitrust crackdown.

Nvidia’s stock plunged on Tuesday. It was initially hammered by broader worries about demand for A.I. chips and then fell further after Bloomberg reported that the Justice Department had subpoenaed the company. (Jensen Huang, Nvidia’s founder and C.E.O., lost about $10 billion in paper net worth on Tuesday.)

It was a tough day for one of Wall Street’s highest fliers. Despite Tuesday’s stock drop, Nvidia’s stock is still up more than double where it started the year. Those enormous gains have helped power huge rises in the S&P 500 and the tech-heavy Nasdaq as well.

But in recent months, investors have become worried that the frenzy has gotten overheated, leading to occasional sell-offs in the Magnificent Seven stocks. And short sellers, investors who bet on drops in target companies’ stock prices, have increasingly set their sights on smaller A.I. players.

Investors were already jittery about Nvidia, after the company delivered a muted sales forecast last week.

Nvidia’s dominance in A.I. is hard to overstate. Its chips are in high demand for developers and providers of chatbots and other tools. While companies like Amazon, Alphabet and Microsoft are developing their own processors to lessen their dependence on the company, Nvidia’s sales have continued to skyrocket.

It’s also forging close ties to other leaders in A.I., including via a partnership with Meta and a potential investment in OpenAI.

The reported subpoenas would be an escalation of government scrutiny of Nvidia. The Justice Department claimed primary responsibility in June for examining the company role in the A.I. industry. Prosecutors have been looking into several parts of its business, including:

• Software that locks customers into using its chips;

• How the company distributes its products, including whether it gives preference to customers who buy complete systems;

• And, according to Bloomberg, Nvidia’s takeover of Run.ai, whose software manages A.I. computing use.

The company denies doing any wrongdoing. “Nvidia wins on merit, as reflected in our benchmark results and value to customers, who can choose whatever solution is best for them,” it told Bloomberg in a statement.

China is in a rut

The bad news keeps on coming for China. Economic data released on Wednesday showed that services activity slowed last month, adding to worries on Wall Street and beyond that the country will not hit its 5 percent annual growth target.

The cascade of bad data is forcing a reassessment. The Caixin/S&P Global services purchasing managers’ index published on Wednesday showed activity slowed in August. That came days after official data showed manufacturing activity had contracted for the fourth straight month.

Confidence in the growth target is ebbing. Global investment banks are cutting their growth forecasts. Bank of America is the latest to do so, saying in a note on Wednesday that it had lowered its expectationsto 4.8 percent.

Western brands are feeling the squeeze. Multinationals have highlighted weak demand in China in earnings calls, saying that the post-pandemic recovery hasn’t materialized. Volkswagen this week warned that it may have to close factories in Germany for the first time in its history after missing financial targets, as it faces rising competition and falling market share in China, its biggest market.

Yet Volkswagen and others aren’t planning to exit China. The carmaker announced plans to invest €2.5 billion, about $2.7 billion, in April despite rising trade tensions between the West and Beijing.

Germany is carving its own path on China. German direct investment in the country has soared this year, even as the U.S. and other allies rethink trade ties. That has put Europe’s biggest economy at odds with the European Union. It views China as a strategic threat (and China policy features heavily in the U.S. presidential election), Noah Barkin, a visiting senior fellow at the German Marshall Fund, wrote in a note on Wednesday.

But whoever wins in November, watch this space for how Washington will treat Europe and its companies over their ties to China.

What’s behind the Disney-Dish fight

Days before “Monday Night Football” kicks off on ESPN, DirecTV still doesn’t have a deal to show the game to its roughly 11 million U.S. subscribers. The reason: The broadcaster is locked in a contract dispute with Disney.

The fight underscores the troubles battering the media industry — and the deep uncertainty over how to fix them.

DirecTV wants to change the distribution game. The satellite TV provider pays Disney about $2 billion a year for channels including ESPN. But like other TV providers, it is fed up with paying high so-called carriage fees that essentially subsidize content for streaming services like Disney+.

DirecTV also wants to stop carrying bundles of channels that it says consumers do not want. It argues that Disney should offer flexible content packages like the slim bundle of premium sports content that ESPN proposed for the Venu sports joint venture with Fox and Warner Bros. Discovery. (Venu has since been blocked from opening for business on antitrust grounds.)

“This is really about changing the model in a way that gives everyone confidence that this industry can survive,” Ray Carpenter, DirecTV’s C.F.O., said on Tuesday.

Disney says DirecTV is being unreasonable. ESPN’s chairman, Jimmy Pitaro, told CNBC on Tuesday that it had offered DirecTV a bundle of channels similar to what it offered to Venu, as well as several others. He said DirecTV had “thus far been unwilling to negotiate or discuss those packages.”

Pitaro added that the distributor’s stance was being driven by its private equity backer’s focus on “short-term value.” (TPG owns a minority stake in DirecTV, though the company is majority-owned by AT&T.)

Fundamentally, Disney contends that DirecTV isn’t willing to pay enough.

Disney has been here before. A year ago, the media giant was in a similar standoff with Charter, which owns the Spectrum cable TV provider. Disney eventually agreed to give Charter customers discounted rates for its streaming services and to drop some channels. (Disney won higher fees for some of its channels, including ABC and FX.)

But would that kind of settlement work here? More important, would it solve the underlying problem of cord-cutting? “The evidence has yet to bear this out,” analysts at MoffettNathanson wrote on Tuesday. “And we remain doubtful it ever will.”

THE SPEED READ

Deals

• TPG has reportedly sold its stake in Sixth Street, its former credit investment arm, back to that firm at a $10 billion valuation. (Semafor)

• 26North, the investment firm led by Josh Harris, the Apollo Global Management co-founder, agreed to buy the electrical systems provider ArchKey in its first private equity deal. (Bloomberg)

Elections, politics and policy

• In campaign news: Vice President Kamala Harris will propose a huge expansion of a tax deduction for small businesses, and congressional Republicans are worried about Democrats’ widening lead in fund-raising. (WSJ, Politico)

• Airbnb asked New York City officials to reconsider tough limits on short-term rentals that led to a steep drop in the company’s business there. (Reuters)

Best of the rest

• Two luxury real estate projects in Albania proposed by Jared Kushner are drawing blowback from local residents. (NYT)

• New Jersey is trying to persuade the N.B.A.’s Philadelphia 76ers to move to Camden as development for a new downtown arena has stalled. (Bloomberg)

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