Summary: Revenues misses and weaker-than-expected guidance from Nvidia and others dragged technology names and stirred some concerns about potentially more downward earnings revision from other companies. Moderation of U.S. consumers’ inflation expectations helped provide a bid for long-end treasuries and brought the yield curve further inverted.
U.S. equities pared a 1% rally in the morning and finished moderately lower, S&P 500 -0.12%, Nasdaq 100 -0.37%. Tech giant Nvidia (NVDA:xnas) reported preliminary Q2 revenues of US$6.7 billion, missing the expected US$8.1 billion by 17%. The company said demand for its video game processors being weak and the challenging market conditions will persist in Q3. Share prices of Nvidia fell 6.3%. Palantir Technologies (PLTR:xnys) plunged 14% after reporting guidance expecting slower growth. The news sparked some concerns among investors’ about more earnings downgrades for the technology sectors.
U.S. treasuries started to rally during London hours, as German bunds and gilts gained, and traded well bids, especially the longer end of the curve, throughout the U.S. session. The long-end was help by moderation of U.S. consumers’ expectations of incoming inflation. In the New York Federal Reserve Banks’s consumer survey, U.S. consumer expectations for inflation over the coming 1 year fell to 6.2% in July (vs 6.8% in June) and expectations for inflation over the coming 3 years fell to 3.2% in July (vs 3.6% in June), the lowest since April 2021. In the survey, consumers’ 5-year inflation expectations came down to 2.3% in July (vs 2.8% in June). The 10-year yield declined 7bps to 2.76%. As the 2-yield was down only 2bps to 3.21%, the 2-10 year yield spread further inverted to -45bps, approaching its -56bps low in 2000.
Stocks traded in Hong Kong and mainland bourses finished Monday moderately lower, Hang Seng Index -0.77%, CSI300 -0.2%. Chinese internet, online education and Chinese property stocks traded in Hong Kong were mostly down. Hang Seng Tech Index (HSTECH.I) lost 1.8%, Alibaba (09988:xhkg) -4.4%, Tencent (00700:xhkg) -2.7%, Xiaomi (0181:xhkg) -3.6%, JD.COM (09618:xhkg) -3.3%. After the market close, a report from Bloomberg saying that India, the largest overseas market of Xiaomi, is going to restrict the company from selling smartphones cheaper than 12,000 rupees (USD150). Cathay Pacific (00293:xhkg) gained 1.4% following Hong Kong’s announcement of cutting inbound travelers’ hotel quarantine to 3 days from 7 days. In the mainland, the lockdown of Hainan, a southern resort island, triggered some buying of traditional Chinese medicine and Covid-treatment related names.
DXY (DXU2) finished Monday trading 0.2% lower. Among the G10 currencies, the Australian dollar was the top performer and rallied 1.1% versus the greenback. Euro and JPY were little changed against the U.S. dollar.
WTI Crude gained 1.6% to USD90.45, being helped by stronger Chinese import figures.
What to consider?
Nvidia pre-announced preliminary Q2 revenues coming at USD6.7 billion (-19% QoQ, +3% YoY), 17% below the company's prior guidance and below market expectations. Weaknesses in the processors for the gaming industry, and to lesser extents, the data center and professional visualization industries dragged down revenues.
Softbank reported a net loss of 3.16 trillion yen and its Vision Funds business segment reported pretax losses of JPY2.33 trillion. The pre-exit unrealized losses in the Vision Funds 1 & 2 were USD10.9 billion for listed stocks and USD8.9 billion for unlisted stocks. The company announced smaller additional share buyback authorization of 400 billion yen and said that the company may not use all of it in the coming 12 months.
For a week-ahead look at markets – tune into our Saxo Spotlight.
For a global look at markets – tune into our Podcast.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
