Market Thoughts – Thursday 29th August – Choppy Trade As Nvidia Fail To Meet Impossibly High Bar

Where We Stand – The most important earnings release in the entire history of the world – at least if you believe the hype beforehand – saw NVDA deliver both top- and bottom-line beats, coupled with better-than-expected third quarter guidance, as well as promising news on the delivery of the new ‘Blackwell’ chip. While those at Nvidia earnings watch parties (bubble sign, perhaps!?) would’ve been pleased with the earnings slate, market participants appeared rather disappointed, with NVDA ending the after-hours session 7% softer, having failed to meet what, in hindsight, was an impossibly high bar that investors had set.

Naturally, given the manner in which NVDA remains central to the AI theme, and the stock’s chunky index weight in both the S&P and Nasdaq, both major benchmarks, as well as major equity indices across APAC, have seen some selling pressure since the earnings release. This pressure could well continue in the short-term, with conditions likely to be somewhat choppy as risks around the AI theme become increasingly two-sided. That said, any dips should continue to be viewed as buying opportunities, with economic growth resilient, earnings growth set for its best annual growth rate since the last quarter of 2021, and the ‘Fed put’ firmly back in place after Chair Powell’s Jackson Hole remarks last week.

Away from the equity space, it is the NZD that steals some attention, with the Kiwi having jumped around 0.75% overnight, testing the 63 figure to the upside. A 10-year high business confidence figure appears the catalyst for the flightless bird having finally found its wings, though should perhaps not be surprising given the fillip that a rate cut will naturally provide to both businesses, and consumers. It will be interesting to see if a similar reaction is seen, skewing US sentiment surveys, after the Fed cut in September. In any case, the NZD seems unlikely to sustain strength for any significant length of time, given the RBNZ’s status as one of the more dovish G10 central banks.

Elsewhere in the FX space, ‘more of the same’ is the general theme, as the greenback continues to unwind last week’s declines, though the bulls would prefer the DXY to reclaim the 101 figure to give this rebound some more legs. Both the GBP and the EUR continue to, slowly but surely, come back into touch with reality, dipping below the 1.32 figure, and testing the 1.11 handle, respectively.

Treasuries are quiet, across the curve, after yesterday’s 5-year supply was digested in a distinctly average manner, with a modest 0.3bp tail. Gold, by extension, has enjoyed a modest relief rally overnight, with solid buying interest found at the $2,500/oz mark.

Crude is also a touch firmer overnight, with front Brent and WTI coming into the day on the back of a 2-day losing streak. Yet again we see a classic ‘buy the rumour, sell the fact’ geopolitical trade in the crude complex, this time as a result of Libyan output being suspended, as participants reflect on how supply from the nation has always been incredibly choppy and unreliable. At risk of sounding like a broken record, a sustained pick-up in demand will be needed to unlock a prolonged rally in crude, though this seems elusive at present, particularly given China’s ongoing struggles.

Look Ahead – With NVDA earnings now out of the way, market observers have until next Friday to wait until the next major macro event risk, in the form of the August US employment report. With that in mind, and considering the looming Labor Day weekend stateside, conditions could perhaps become rather tepid, with liquidity thin and volumes a touch light.

In terms of the docket, the second estimate of US Q2 GDP is the highlight, though I use that word in its loosest sense, given expectations for the print to be unrevised, showing 2.8% growth on an annualised QoQ basis. The weekly US jobless claims figures might well attract more attention, particularly with the continuing claims print, seen a touch higher at 1.87mln, coinciding with the survey week for the aforementioned jobs report.

Elsewhere, 7-year supply is due from the US, while German CPI this afternoon may provide a useful leading indicator ahead of the eurozone-wide figure due tomorrow, albeit neither should deter the ECB from another 25bp cut at their September meeting in a couple of weeks. On that note, Governing Council members Lane and Nagel both speak today, though neither is likely to make any significant waves.