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London Quick Take - 5 Things to Know in Markets Today - 9 Nov
5 to Know in Markets Today -AI selloff
1.Nvidia rocked by China spy scandal
Just bizarre. The AI trade hits full meltdown mode Thursday, rebounds Friday then over the weekend one of its chief protagonists is caught up in some Chinese spy honey trap story. We don't really know what's going on here, but Nvidia's board said it is "initiating an independent investigation in light of recent reporting that founder and CEO Jensen Huang has been the target of a foreign intelligence effort". Huang admitted an affair in a memo to staff over the weekend. Markets are trying to figure out what this means for arguably the world's most important company right now. If Huang is forced to leave, what happens to Nvidia? As others have said, Huang is kind of irreplaceable for US leadership in AI. There's no upside from this - shares of Nvidia stumbled about 5% in pre-market trade. We just need to wait and see what the investigation throws up.
Naturally this is weighing on Nasdaq-100 futures a bit, though US futures are otherwise looking solid as the recovery on Friday continues to have some legs. Nvidia is huge and at the heart of the AI supply chain, so what happens to this stock matters to the rest of the market. There is the potential for this story to knock sentiment, which is already pretty fragile. Overnight we saw some divergence across the tech space. Asia was a little mixed with a strong rebound for Taiwan, which rose 5%, and the Nikkei 225 up 2.5%, while the Kospi failed to hold earlier gains to trade –0.8% lower.
Naturally this is weighing on Nasdaq-100 futures a bit, though US futures are otherwise looking solid as the recovery on Friday continues to have some legs. Nvidia is huge and at the heart of the AI supply chain, so what happens to this stock matters to the rest of the market. There is the potential for this story to knock sentiment, which is already pretty fragile. Overnight we saw some divergence across the tech space. Asia was a little mixed with a strong rebound for Taiwan, which rose 5%, and the Nikkei 225 up 2.5%, while the Kospi failed to hold earlier gains to trade –0.8% lower.
2.Stocks try to recover from Thursday capitulation
US stock markets rallied Friday in the wake of the mass capitulation event in the prior session, which rippled across Asian and European markets as investors went through a phase of broad de-risking. The Nasdaq-100 added 1.35% on Friday after its worst day in 19 months in what could be a bit of a head fake before we see a deeper push to find the lows. I don't think we have found the lows just yet but there are plenty of ways to scale into some of this weakness. Broadly speaking I think this is a bubble deflating - as it's been for many, many months, rather than a bursting. Sharp rebound for memory stocks, semis and computer hardware, all the most heavily beaten-up names came back strongly – AMD, Micron, Intel, Lam Research, Applied Materials, SanDisk, Nebius, Marvell...all the usual AI suspects. SpaceX jumped 8%. IREN, one of the worst-hit neoclouds, soared +20% after strong earnings. Revenues beat and it cut its capex guidance. Demand for compute does not seem to be an issue. Shares jumped 20% but remain –50% lower YTD, -64% lower last 12 months. Horrible trade.
3.AI trade faces new earnings test
Interesting week for earnings with the focus AI expectations as we have some of the usual suspects in the lineup. Neocloud CoreWeave reports on Tuesday, while Japan's SoftBank Group – a major AI investor - also reports that day. Nebius, another neocloud name badly scarred by the selloff, reports before the US market opens on Thursday, while Applied Materials and Cisco are also scheduled for Thursday. Full week ahead here.
4.Hot US jobs report ahead of CPI print
A hot jobs report complicates the picture somewhat. US nonfarm payrolls rose by 165,000 versus consensus of 59,000, whilst there were sizeable upward revisions to the August and September reports. Unemployment ticked down to 4.1% from 4.2%. Treasury yields rose on the report and odds of a December rate hike by the Fed rose to 75%. It means higher-for-longer rates – the pace of job growth is surprisingly strong.
Fed officials are seen swinging behind a hike next month, and US inflation data arrives tomorrow. Headline CPI is seen slowing to 0.3% month on month from 0.6%, with core inflation easing to 0.2% from 0.3%. Friday’s producer prices are also expected to moderate, to 0.4% headline and 0.3% core. The Cleveland Fed's Nowcasting model indicates the monthly increase as low as 0.2% rounded. Still too hot and the economy is doing well. But what if the AI boom, which has been driving GDP growth, reverses?
Fed officials are seen swinging behind a hike next month, and US inflation data arrives tomorrow. Headline CPI is seen slowing to 0.3% month on month from 0.6%, with core inflation easing to 0.2% from 0.3%. Friday’s producer prices are also expected to moderate, to 0.4% headline and 0.3% core. The Cleveland Fed's Nowcasting model indicates the monthly increase as low as 0.2% rounded. Still too hot and the economy is doing well. But what if the AI boom, which has been driving GDP growth, reverses?
5.European indices higher as oil falls on de-escalation hopes in Middle East
Europe was still playing catchup with Thursday's capitulation by Friday but are trading a lot firmer this morning, with the FTSE 100 +0.5% to recover the 10,700 area, where it's been bumping around now for some weeks with any real direction. Mining stocks rose as copper prices advanced 1% and gold stabilised above $4k, rallying back after last week's pullback. Meanwhile data showed Chinese producer prices rose 5.7% last month, ahead of expectations and the fastest pace in 4 years. The DAX rallied around 0.7% while the CAC was a little more sluggish, up a quarter of a percent amid some pressure on the luxury heavyweights on the index on signs of Chinese inflationary pressures.
Brent crude prices were down 2% around $96 as US President Donald Trump said it was "highly unlikely" he would order a resumption of strikes on Iran as long as negotiations make progress. Positive noises from the President but Secretary of State Marco Rubio said talks were unlikely to show a breakthrough as Tehran's demands are "outrageous and ridiculous". Geopolitical attention this week will also focus on US-mediated Russia–Ukraine talks in Abu Dhabi on 10–11 November.
Brent crude prices were down 2% around $96 as US President Donald Trump said it was "highly unlikely" he would order a resumption of strikes on Iran as long as negotiations make progress. Positive noises from the President but Secretary of State Marco Rubio said talks were unlikely to show a breakthrough as Tehran's demands are "outrageous and ridiculous". Geopolitical attention this week will also focus on US-mediated Russia–Ukraine talks in Abu Dhabi on 10–11 November.