By Michael Brown Senior Research Strategist at Pepperstone
DIGEST – Markets didn’t do especially much new yesterday, even if a more positive risk tone did prevail, as focus turns to earnings from Nvidia after the close tonight.
WHERE WE STAND – Somewhat ‘slim pickings’ this morning in terms of interesting, or fresh, developments, after a bit of a snoozer yesterday.
Still, I can’t imagine too many participants are especially perturbed by the relatively subdued nature of trade, which also makes a fair bit of sense, considering the plethora of event risk on the horizon in the short-term, including earnings from Nvidia (NVDA) today, and simmering tensions in the Middle East.
In actual fact, yesterday’s most interesting developments came from the Far East, chiefly Japan, amid reports that PM Takaichi has continued to lean on BoJ Gov Ueda in an effort to slow the pace of monetary tightening, having voiced ‘apprehension’ to the idea of further hikes per sources cited by local media. This led to a predictable softening in the JPY, with spot USD/JPY briefly north of the 156 figure once more, though I think we’re still a fair way off intervention risks ramping up in material fashion.
This does all speak to a broader point, though, in that central bank independence is not only being eroded stateside, but across DM. President Trump is pressuring the Fed to cut aggressively, and the Japanese Govt are seeking to slow the already glacial pace of tightening while, if media reports are to be believed, ECB President Lagarde could be about to erode independence from the inside out, stepping down early in a political stitch-up to ensure French President Macron has a role in picking her successor.
Setting the ECB aside, I think this all points to DM governments simply being unwilling to take the politically unpalatable decisions necessary to ‘balance the books’ and restore things to a more sustainable fiscal footing, with it instead being considerably easier to pin the blame for ballooning deficits and rising debt servicing costs on central banks, who have a very limited right of reply. It seems somewhat unlikely that things will change on this front any time soon, with the direction of travel seemingly set. BoE Governor Bailey increasingly looks like the last bastion of G4 central bank independence!
Back to yesterday, and it must be said that somewhat more positive risk tones did indeed prevail, with stocks rallying rather nicely, and the tech sector leading the way higher. Still, we remain within the 200pt range that we’ve seen YTD in spoos, with the market showing little desire at this stage to breakout to either side. Still, to my mind, the fundamental bull case remains a robust one as we’re set for a fifth consecutive quarter of double-digit earnings growth, and with underlying economic growth remaining robust.
Elsewhere, besides the aforementioned move in the JPY, trade in the FX space was rather turgid and unremarkable, with the same going for the vol, or lack thereof, seen across the Treasury curve.
Metals, however, did see some notable downside, with spot gold pulling back under the $5,200/oz handle, and spot silver retreating a touch too, though both of these moves have since pared. While the latter is still far too volatile for me to be touching with a barge pole, I’d be tempted to buy the dip in bullion, as we not only remain north of the range seen in the aftermath of January’s momentum unwind, but also as both retail and reserve demand persist, underpinning the fundamental case for further upside.
LOOK AHEAD – Earnings from Nvidia (NVDA) highlight the calendar today, and I guess we have to consider them a macro event these days, not only with the firm being the biggest single stock in both the S&P 500 and the Nasdaq 100, but also a bellwether for the AI theme at large.
As usual, the market will be looking for three things from the firm. A beat, vs. consensus expectations of $1.50 EPS on revenues of $65.9bln; solid guidance for fiscal Q1 27, above the street estimate of $72.5bln; and, lastly, bullish commentary from CEO Huang regarding future demand, and the durability of the firm’s competitive advantage. All that said, options tied to the stock imply a move of ‘only’ +/-4.4% after hours. While this is still pretty punchy for a $5tln market cap company, it is nonetheless the smallest post-earnings move that markets have priced in the run up to a quarterly report in almost three years.
Besides those earnings, there’s not much to look out for today. Of course, geopolitical and trade headlines still warrant monitoring closely, though scheduled events are relatively thin on the ground. Those events comprise a smattering of central bank speakers, final CPI figures from the eurozone, and a 5-year US Treasury auction, none of which is especially likely to ‘move the needle’ too much.