London Quick Take – 29 August – Record high for Wall Street ahead of key inflation report, UK banks stumble

So, we were braced for Nvidia earnings and it didn’t actually amount to a hill of beans – the results were great, traders picked a couple of holes in the numbers for China and data centres, shares fell a touch mainly on options expiries than any real shift, and the broad market hit a fresh record high as US GDP beat expectations, nullifying lingering recession concerns. So, what was the fuss? The AI bandwagon remains on the trail – it's not time to circle the wagons yet. September is usually the weakest month for stocks in the US, but the economy is chugging along and an interest rate cut is expected soon. What could go wrong?

At the open, the FTSE 100 traded down a touch to retest 9,200 having failed to make the move past 9,300 stick. Whilst the pound is down against the dollar today, with cable retreating from the 1.35 handle, softness in domestic banks is weighing on the blue chips.The DAX and CAC also trade a bit lower after a mixed bag in Asia saw China extend its good run in August and Japan falling on some weak economic data.

Today we have US inflation data that could move the needle if it surprises to the upside. Anything in line should keep the market firmly expecting a rate cut next month. Fed governor Waller, angling for the job of chair, says he favours cuts. The dollar is down 2% for August – concerns Lisa Cook’s ousting a factor but also expected cuts. USD has come back a bit today to pressure the euro and sterling.

Q2 US GDP rose +3.3% YoY which is an increase on the advanced reading of +3% and topped average estimates. Home sales and unemployment claims fell. This is probably the key for the Fed before September with next week’s nonfarm payrolls report. As noted previously, does it really matter if hiring is slowing when the labour supply is rapidly falling?

The key data today is the US personal-consumption expenditures (PCE) inflation report. The core index, the Fed’s preferred inflation barometer, is forecast to rise 0.3% in July, which would see the annual rate rise to 2.9%, the highest rate since February. If it gets to 3% it would be the highest since March 2024. We could get a hotter print that upsets the market a bit and maybe sees some repricing lower of the chances of a cut in September. The PPI inflation report earlier this month was the hottest in 3 years and crucially services inflation is rising – so it’s not just tariffs.

And re inflation – today sees the end of US duty-free imports of packages worth less than $800, the "de minimis" exemption that drove Shein and Temu...it means higher consumer prices for certain and these are not going to be felt for a while yet.

Stocks

UK bank stocks fell with, NatWest –3.7%, Lloyds –2.84% and Barclays –2.2% and HSBC –0.75% on reports that the chancellor will target lenders for a tax-grab to raise money in the Budget for all the various spending pledges that don’t add up. Easy pickings politically and profits have been good lately, plus shares of the main banks on the FTSE 350 have fizzed in the last three years - but does it chime with a pro-growth agenda if you constrain their ability to create new £ by lending? The IPPR think tank today argues that Rachel Reeves should levy a new “Thatcher-style tax on bank windfalls”.

Tesla – with move out of the triangle we have seen some positive momentum but now testing breakout of the late June highs at $357, next to $367? Yesterday it declined 1% as European sales cratered 40% in July.

Nvidia may have disappointed traders but the Street is happy, with a series of price target hikes - to $235 from $220 at Bank of America, $230 from $215 at KeyBanc, $228 from $210 at Truist, to $225 from $185 at Bernstein, to $220 from $190 at Benchmark, $215 from $170 at JPMorgan...and several more besides. But some have pointed out concentration risk for the stock – 2 customers made up 39% of its revenues...who are they and what happens if they reduce their spending? Talk that Huang has been in the White House to get chips into China....worth $2bn-$5bn?