By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Nvidia beat expectations in their quarterly report yesterday, shoring up sentiment a touch in the equity space, while markets elsewhere were somewhat subdued. Today, US-Iran talks in Geneva will be the main focus.
WHERE WE STAND – For the most part, yesterday was an exceedingly dull affair.
As is often the case, when huge event risk is looming large, participants have very little desire to do much at all, which is almost exactly what we saw in the run-up to earnings from Nvidia after the market close. Not helping matters was the very thin nature of both data- and news-flow, with there being little for anyone to get their teeth into, besides a soft(ish) 5-year note auction stateside.
Still, trade did have a notable risk-on bias to it, with stocks rallying nicely on both sides of the pond, and the tech sector leading the way, as calmer heads continue to prevail, and the market moves away from the rather fanciful idea that AI will eat every business that stands in its way. Instead, pricing a more nuanced reality where, even if some software names do face greater competition, the entire SaaS industry is unlikely to be decimated, while the hyperscalers and data centre operators powering AI compute are set to benefit from greater demand.
Anyway, as for those Nvidia earnings, the firm delivered another solid set of figures, with both top- and bottom-line beats, coupled with better-than-expected data centre revenues, and a gross margin north of 75%. Not only did the figures themselves surprise to the upside, revenue guidance for fiscal Q1 27 was also strong, between $76.44bln and $79.56bln, again assuming no sales to China.
Predictably, NVDA stock traded a chunk higher after hours, adding as much as 4% in post-market trade, in turn boosting spoos and the NQ in the post-market session. While we will have to wait for the dust to settle a bit here, it does seem – from an initial read at least – that Nvidia’s earnings could well have done just enough to restore market participants’ confidence in the tech/AI story for the time being, particularly considering the bullish commentary heard from CEO Huang.
With that in mind, and with the overall equity bull case still a robust one amid solid earnings growth, and strong economic growth, as well as mounting monetary and fiscal tailwinds as the year progresses, I remain a bull, with the ‘path of least resistance’ continuing to lead to the upside, and dips continuing to present buying opportunities.
Besides that, there isn’t much to write home about, once more. Tight ranges continue to prevail across the DM FI and FX complexes, though the Aussie was a notable outperformer on Wednesday after a hotter-than-expected January CPI report cemented expectations for an RBA hike at the next-but-one meeting in May.
Precious metals, meanwhile, built further upon recent gains, allowing spot gold to reclaim $5,200/oz, and spot silver to trade back above the $90/oz figure for the first time in three weeks. I continue to favour further upside for both, with dips continuing to find solid buying interest, and the fundamental bull case still a robust one amid solid reserve, and retail demand. For gold, $5,250/oz then $5,400/oz are the key levels to watch, while silver bulls will want to see a close north of the $92.50/oz region, as that gets us to a point of having erased over half the declines seen since the end-January car crash.
LOOK AHEAD – A fairly light docket today, especially on the data front, with only the weekly US jobless claims figures due. While the continuing claims print does pertain to the February NFP survey week, neither that, nor the initial figure, are likely to be especially market-moving, having hovered around 1.85mln and 220k respectively for some time now.
Besides that, a few central bank speakers are due, including remarks from ECB President Lagarde, while this week’s slate of Treasury supply concludes with a 7-year note auction tonight.
In addition, geopolitical developments will be in focus with US-Iran talks set to take place in Geneva, as the threat of US military action in the Middle East continues to linger.
Closer to home, political events will be watched closely, with the Gorton & Denton by-election being held today, a constituency that Labour have held continuously since the ‘30s. Defeat here would be another major blow for PM Starmer, particularly if Labour were to fall into third place behind both Reform and the Green Party, in turn raising the (already very high) probability of a leadership challenge being triggered after the local elections in May.