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London Quick Take - 11 Aug - European stocks falter and yields tick up as crude barrels towards $90, Nvidia raises $500bn for AI financing
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Oil rallied and stocks dipped on fresh US-Iran conflict uncertainty after President Trump demanded Tehran pay damages, fuelling fresh worries about the path towards fully reopening the Strait of Hormuz any time soon. It comes as the White House seems content to let economic pressure on the regime work in favour of fresh strikes and military escalation; "low-keying it", as Trump puts it. It's hot air - Trump says Iran should pay 50 years' of damages but it tests traders' nerves a bit as it leans into towards worries about a 'forever conflict' that means higher for longer oil prices. Meanwhile, data showed crude stockpiles in the US Strategic Petroleum Reserve declined below 300mn barrels, the lowest it's been in 4 decades – again worrying traders that tighter markets are in the post. Brent trades +2% or so higher as it extends the push above the 200-day and now the 50-day moving averages at $81.60 and $83.80 respectively to test the $90 handle this morning. We should see $95 Brent retested if this keeps up and we break the fairly chunky bit of resistance at the $90 round number where we saw a big fight on 30/31 July. After this, worries about physical tightness and exhaustion of reserves may see $100 again.
Higher oil prices exert upward pressure on bond yields and inflation expectations. The UK 10yr gilt yield topped 5% on the rise in oil prices, while a survey showed UK consumer sentiment rose to a two-year high and retail sales picked up. The US 10yr yield rallied to 4.73%, towards the top of its 52-week range at 4.75%. What happens in the Middle East is one side of the equation, the other is the Fed's reaction function, which is not exactly obvious. On that front Wednesday's US CPI inflation is key test, seen around +0.2% month-on-month for both headline and core CPI.
The dollar is backing up, particularly against the yen as the intervention impetus is unwound and because the yen doesn't like the broadly higher global bond yield dynamic. USDJPY is pushing 160 once more, whilst GBPUSD struggles to hold its nose above 1.35 after retreating from yesterday's 4-week high at 1.3530. Gold has eased back after yesterday's sharp rally with DXY gaining some ground on higher Treasury yields, led by gains against the yen. Spot gold put in a more-than-two-month high at $4,435 on Monday as it extended the breakout started 5 August, but upwards pressure on yields has seen this move back off to $4,357 as of send time. The longer the Fed can look through higher inflation the further gold can move up.
Some good positive UK data this morning – Barclays consumer sentiment rose 30% in July to a 21-month high; BRC retail sales rose +1.3%, with signs the World Cup helped demand; while the used car market returned to growth, with Q2 sales their best in five years. Evidence of a 'Burnham Bounce'? It comes after that REC/KPMG employment survey finally moved out of contraction territory.
There's a fair slab more data this week with Germany’s final July inflation reading expected to confirm 2.8% on Wednesday, up from 2.6% in May and 2.3% in June. That could cement bets on the ECB hiking once more in September and suggests that EURUSD is next heading to 1.16. UK GDP data is also due up Thursday and likely shows expansion but at a slower pace, with quarter-on-quarter growth slowing to +0.4% from +0.6% in Q1, though this maintains the annual pace of growth at +1.1%. For June GDP is seen +0.8% from a year earlier, down from May’s +1.3%.
European stock markets were off slightly at the start of trade Tuesday as higher oil prices weighed on sentiment. Oil & gas shares outperformed as crude ticked up. Spirax fell to the bottom of the FTSE 100 despite a +54% rise in pre-tax profits. Shares were –7% despite management reiterating full-year guidance. IHG felt both sides of the Trump effect; uplift from the World Cup and a hit from the US-Iran war. Shares fell nearly –3% as it warned off the impact of the conflict in the Middle East on its hotels, though strong trading in the US and China helped offset some of these "challenges". Nevertheless, global revenue per available room (RevPAR) growth slowed to +3.5% in Q2, down from +4.4% in the first quarter. The Middle East doesn't amount to much for the business - just 5% of revenues globally. Management say they're still on track to hit full-year earnings and revenue expectations. Elsewhere, Bellway fell as it asked for more government support to boost the housebuilding sector, despite the FTSE 250 company building more than 10% more homes in the year to the end of July.
There were modest declines on Wall Street on Monday as the US-Iran conflict was enough to keep the bulls in check after the S&P 500 reached a record high on Friday as it notched its best week since April. There's some positive news on AI in terms of topping up the punchbowl with the Kool-Aid. Nvidia is raising a $500bn financing package to keep the whole AI-hyperscaler-capex-boom momentum going. Nvidia said it's got Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR for to help create financing platforms that will effectively let investors "compute" as an asset class. It signals plenty of institutional demand still out there for the AI buildout, which is a positive for stocks. It may help create more demand from sources beyond the hyperscalers and helps secure Nvidia as the dominant infrastructure partner for firms that want to tap AI but don't have the cash on hand like the Mag7 do. Intel touted $15bn capital raise but upped to $20bn as it tested demand out there and found still plenty. Shares were only –4% on the dilution. There is a lot of opportunity for Intel to build new chip plants – TSMC, the world's biggest contract chipmaker - posted a +45% rise in July sales. One to watch for the AI trade is CoreWeave, which reports today.
Finally, one that's not all that bothered about the AI game is Berkshire Hathaway, which rose +1.5% as investors gave a cautious welcome to its Q2 numbers.
Higher oil prices exert upward pressure on bond yields and inflation expectations. The UK 10yr gilt yield topped 5% on the rise in oil prices, while a survey showed UK consumer sentiment rose to a two-year high and retail sales picked up. The US 10yr yield rallied to 4.73%, towards the top of its 52-week range at 4.75%. What happens in the Middle East is one side of the equation, the other is the Fed's reaction function, which is not exactly obvious. On that front Wednesday's US CPI inflation is key test, seen around +0.2% month-on-month for both headline and core CPI.
The dollar is backing up, particularly against the yen as the intervention impetus is unwound and because the yen doesn't like the broadly higher global bond yield dynamic. USDJPY is pushing 160 once more, whilst GBPUSD struggles to hold its nose above 1.35 after retreating from yesterday's 4-week high at 1.3530. Gold has eased back after yesterday's sharp rally with DXY gaining some ground on higher Treasury yields, led by gains against the yen. Spot gold put in a more-than-two-month high at $4,435 on Monday as it extended the breakout started 5 August, but upwards pressure on yields has seen this move back off to $4,357 as of send time. The longer the Fed can look through higher inflation the further gold can move up.
Some good positive UK data this morning – Barclays consumer sentiment rose 30% in July to a 21-month high; BRC retail sales rose +1.3%, with signs the World Cup helped demand; while the used car market returned to growth, with Q2 sales their best in five years. Evidence of a 'Burnham Bounce'? It comes after that REC/KPMG employment survey finally moved out of contraction territory.
There's a fair slab more data this week with Germany’s final July inflation reading expected to confirm 2.8% on Wednesday, up from 2.6% in May and 2.3% in June. That could cement bets on the ECB hiking once more in September and suggests that EURUSD is next heading to 1.16. UK GDP data is also due up Thursday and likely shows expansion but at a slower pace, with quarter-on-quarter growth slowing to +0.4% from +0.6% in Q1, though this maintains the annual pace of growth at +1.1%. For June GDP is seen +0.8% from a year earlier, down from May’s +1.3%.
European stock markets were off slightly at the start of trade Tuesday as higher oil prices weighed on sentiment. Oil & gas shares outperformed as crude ticked up. Spirax fell to the bottom of the FTSE 100 despite a +54% rise in pre-tax profits. Shares were –7% despite management reiterating full-year guidance. IHG felt both sides of the Trump effect; uplift from the World Cup and a hit from the US-Iran war. Shares fell nearly –3% as it warned off the impact of the conflict in the Middle East on its hotels, though strong trading in the US and China helped offset some of these "challenges". Nevertheless, global revenue per available room (RevPAR) growth slowed to +3.5% in Q2, down from +4.4% in the first quarter. The Middle East doesn't amount to much for the business - just 5% of revenues globally. Management say they're still on track to hit full-year earnings and revenue expectations. Elsewhere, Bellway fell as it asked for more government support to boost the housebuilding sector, despite the FTSE 250 company building more than 10% more homes in the year to the end of July.
There were modest declines on Wall Street on Monday as the US-Iran conflict was enough to keep the bulls in check after the S&P 500 reached a record high on Friday as it notched its best week since April. There's some positive news on AI in terms of topping up the punchbowl with the Kool-Aid. Nvidia is raising a $500bn financing package to keep the whole AI-hyperscaler-capex-boom momentum going. Nvidia said it's got Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR for to help create financing platforms that will effectively let investors "compute" as an asset class. It signals plenty of institutional demand still out there for the AI buildout, which is a positive for stocks. It may help create more demand from sources beyond the hyperscalers and helps secure Nvidia as the dominant infrastructure partner for firms that want to tap AI but don't have the cash on hand like the Mag7 do. Intel touted $15bn capital raise but upped to $20bn as it tested demand out there and found still plenty. Shares were only –4% on the dilution. There is a lot of opportunity for Intel to build new chip plants – TSMC, the world's biggest contract chipmaker - posted a +45% rise in July sales. One to watch for the AI trade is CoreWeave, which reports today.
Finally, one that's not all that bothered about the AI game is Berkshire Hathaway, which rose +1.5% as investors gave a cautious welcome to its Q2 numbers.
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