Thursday Aug 24 2023 10:50
5 min
Stocks in Europe rose early on Thursday, taking on a bit more positive momentum for the week as a whole after Nvidia’s blockbuster results underpinned risk appetite and sent US futures higher overnight. The FTSE 100 traded about 0.4% higher in London to move closer to 7,400, trading at its best in a week having rallied almost 0.7% to finish at 7,320 yesterday. In Frankfurt the DAX added about three-quarters of a percent to come close to 15,900. Crude fell again but was off yesterday’s lows on building US gasoline inventories, nat gas was back to test the 100-day line at $2.47 as Woodside Energy said it had reached an in-principle agreement with unions to avoid a strike that could hit LNG exports. Gold firmed up above $1,920 as yields held lower with the US 10yr below 4.20%, down from that 16-year high at 4.366% struck earlier in the week.
The AI gold rush is only just beginning. At least for Nvidia the show goes on, with the company posting a doubling in revenues that topped already lofty expectations. Revenues for the third quarter smashed expectations at $13.5bn and raised its outlook for the coming quarter to $16bn, implying growth of 170%. The numbers simply underscore how central the company’s graphics processing units are to the generative AI boom. For example, its A100 and H100 AI chips are used for OpenAI’s ChatGPT. There is a huge scramble for chips and supply is not abundant, placing Nvidia in a sweet spot to sell the shovels. Pro forma earnings rose to $2.70 per share versus $2.09 per share expected. Shares are currently up around 8% pre-market to extend the year’s dizzying ascent. Hedge funds will be happy.
There was some very soft data from the euro area yesterday that pushed down yields and saw traders pare bets for the European Central Bank to raise rates next month. We may well have seen the ECB do its last hike and it will be cutting perhaps sooner than expected. This will have implications for the Fed as it tries to hold the line against inflation. Elsewhere today, Jackson Hole kicks off, weekly unemployment claims from the US are due up alongside durable goods orders.
Some notable changes are likely in the FTSE 100, with Dechra Pharmaceuticals, Diploma, Hikma Pharmaceuticals and Marks & Spencer set for promotion, whilst Abrdn, Johnson Matthey, Persimmon and RS Group are due to be relegated to the FTSE 250. Good times for MKS are back after it raised its full-year outlook. These are liable to change however, with the actual review of the index series based on next Tuesday’s closing prices.
Bad news can be good news for many as markets have scaled back where they think Bank of England interest rates will peak, pushing down short-end gilt yields with the 2yr note under 4.93% from highs earlier this week around 5.25%. Yesterday’s composite PMI reading was the first sub-50 contraction reading since January, and the softest figure in 31 months. It noted that firms signalled a renewed downturn in business activity in August, ending a six-month period of expansion. Mostly this was down to a faster fall in new orders due to softer domestic economic conditions and higher borrowing costs. Input costs moderated, with costs rising at the slowest in two-and-a-half years, but reports of persistently strong wage pressures underlines the problems facing businesses and the Bank of England in taming inflation. Meanwhile, Sage reported sales at Britain’s small businesses have collapsed by a fifth. It’s not a good look for the BoE as it faces the September meeting – as I said last time the Bank has thrown in the towel and already committed to a recession. And when the global recession hits it won’t matter much anyways...Hays today reporting record fees thanks partly to wage inflation: stagflation environment. Maybe one more hike this September and done? It would seem to be unlikely the BoE would want to still be hiking as the Fed and ECB halt.
GBPUSD: Yesterday’s soft PMI reading saw sterling retest the key 1.2610 area that has been at the bottom of an important support range for cable.
EURUSD – bounced clean off the 200-day line at 1.08 where there is also near-term trend support.