CNBC Daily Open: Markets have a new narrative

This report is from today’s CNBC Daily Open, our new, 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.

Battered markets
U.S. stocks were mixed Friday, with the Dow Jones Industrial Average the only major index to rise. Asia-Pacific markets fell Monday, with Hong Kong’s Hang Seng Index tumbling more than 2.3%. The index was dragged down by a 17% plunge in Country Garden Holdings after the beleaguered real estate firm announced it’s suspending trading of its onshore bonds.

India’s increasing influence
India’s asserting its presence in Southeast Asia, a move motivated by intensifying rivalry between the country and China. For instance, New Delhi said in June it’s giving a naval warship to Vietnam. The growing ties between India and Southeast Asia might help countries in the region counter China’s dominance, analysts say.

Relentless rain’s bad for grain
Rice prices are set to rise even further, according to a report by Fitch Ratings. Heavy rain and flood risks in China’s grain-growing regions will reduce crop yields, lowering domestic supply and potentially increasing demand for rice imports. That’ll put additional pressure on rice prices — already at their highest in 12 years.

Jail for SBF
FTX founder Sam Bankman-Fried headed to jail Friday after a judge revoked his bail over alleged witness tampering. Government prosecutors said Bankman-Fried had sent over 100 emails to the media, including private diary entries of his ex-girlfriend, Coraline Ellison, to the New York Times. Bankman-Fried’s expected to remain in custody until his criminal trial on Oct. 2.

[PRO] Growth in Chinese A.I.
Alibaba sees a huge growth opportunity driven by artificial intelligence services, the Chinese technology giant said during its earnings call. Even though commercial returns on AI might still be far away, HSBC analysts think these Chinese hardware stocks are already reaping rewards.

There’s a new narrative in markets.

The Nvidia-fueled rally that began in May seems to be petering out. Expectations of bumper earnings are now baked into stock prices — and investors are realizing how expensive artificial intelligence stocks are. The VanEck Semiconductor ETF was down 5.2% for the week, its worst since October 2022.

At the same time, the U.S. economy is growing so much more than anticipated that Wall Street thinks a recession isn’t happening this year. Economists, according to a Philadelphia Federal Reserve poll, are also revising upwards their growth forecasts.

A robust economy means higher demand for goods and services. One barometer of that is oil. Indeed, prices for oil have rallied for seven consecutive weeks, the first time since June 2022. To be sure, that’s largely because of supply constraints for now, but increased demand will surely translate into higher prices soon.

That’s good news for investors in energy stocks, which led the market Friday, last week, this month and this quarter, as CNBC’s Scott Schnipper observed. The VanEck Oil Services ETF rose 2% last week, handily beating the VanEck Semiconductor ETF.

But that’s bad news for investors wary of interest rates. Higher commodity prices and demand might mean the Federal Reserve may not pause — or cut — rates as soon as markets expect. The hotter-than-expected PPI reading adds credence to this new narrative.

Markets were shaken. The S&P 500 lost 0.1% and the Nasdaq Composite slid 0.6%, giving both indexes their second straight losing week. For the Nasdaq, that’s its longest down streak since December. The Dow Jones Industrial Average, however, managed to eke out a 0.3% increase to advance 0.6% for the week.

The week ahead is dominated by consumer spending data, which can be fuzzy because it tends to fluctuate by season and sentiment. Prepare for more volatility.