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Nvidia melt up triggers fresh all-time highs in stocks

Vantage Updated Updated Thu, 2024 February 22 10:50


* Nvidia bumper results send S&P 500, Dow to record highs

* USD dips, EUR hesitates after breaking higher after PMIs

* Money markets reduce bets on ECB rate cuts this year to less than 100bps

* Gold price falls as Treasury yields rise post-solid US jobs data

FX: USD made back most of the losses seen in the early part of the trading day. The DXY had dipped below its 200-day SMA at 103.72 before retracing. The weekly initial jobless claims data unexpectedly fell signalling a still strong labour market. Services PMI figures cooled slightly, but manufacturing saw a welcome return to growth.

EUR spiked up to 1.0888 early in the European session before closing near its lows with an ominous bearish-looking candle. The 200-day SMA is at 1.0826. The ECB minutes likely marked a long road to rate cuts. Inflation is seen coming down, but policymakers are more worried about the economy while wage developments remain key. The PMI data showed an improving economy though one still in contraction. But sticky services inflation is still a headwind to policy easing.  

GBP slid from post-PMI highs after cable popped above 1.27. Those levels were last seen at the start of the month. The composite UK PMI hit its highest in nine months. There is currently a 50% chance of the first rate cut by June, with an August move fully priced.

USD/JPY looks to be making a break higher after consolidating over the past week. US Treasuries are leading the way with the crucial 10-year yield closing in on long-term resistance at 4.35%. A break here would target 4.50% and potentially push USD/JPY up towards 151+.

AUD followed the other majors by giving back gains through the day after the solid US data. The aussie printed a high at 0.6595 before pulling back below the 50% level of the Q4 rally at 0.6571. USD/CAD dropped to 1.3440 before paring losses. Canada retail sales were mixed. The loonie was helped by strong risk sentiment in its battle with dollar strength.

Stocks: US equities surged higher on Nvidia/AI mania. But the rally wasn’t just limited to tech with around 75% of the S&P 500 in the green. The benchmark S&P 500 closed 2.11% higher at 5,087. The Nasdaq 100 surged 3.01% to finish at 18,005. The Dow Jones underperformed, settling 1.18% up at 39,069. Tech climbed by 4.35%, well ahead of the next best sector, consumer discretionary, up 2.19%. Utilities was the only sector in the red, posting a 0.77% decline. Rivian notably plunged 26% as production and guidance were dismal while it announced layoffs of 10% of its workforce. Moderna surged 13.5% as it posted a surprise profit per share and beat on revenue.

Asian futures are in the green. APAC stocks traded mostly positively after stellar earnings by Nvidia after the US close. The ASX 200 lagged after the PMI manufacturing data dipped into contraction territory. The Nikkei 225 hit fresh all-time highs above 39,000 amid tech strength. The more broad-based Topix is yet to make record highs.

Gold traded in a narrow range with the upside capped by the 50-day SMA at $2032. Any upside break in Treasury yields will be worth watching with the non-yielding precious metal potentially exposed. That said, gold is holding up relatively well this year, as we detailed yesterday.

Day Ahead – IFO, Nvidia recap

German IFO business survey data is the main data highlight. Morale is forecast to rise though weak manufacturing continues to act as a headwind in the region’s biggest economy. The recent PMI data showed a sharp fall, plunging further below 50.

We can’t but mention the stock of the day/week/year. Nvidia’s earnings impressed, despite hugely lofty expectations, and many sell-side brokers have since upgraded their price targets. All major metrics beat, it raised the next quarter revenue outlook alongside very positive commentary. “Tipping point” is the phrase most quoted from the CEO, who said demand far exceeds supply and it cannot keep up.

The giant chipmaker gained an entire HSBC in value just overnight. It enjoyed the biggest one-day gain of market cap for any US company. Momentum is the key watchword as volatility is low, Mag7 (except Tesla) earnings growth looks unstoppable and megacap concentration means overweighting stocks is straightforward. But it all kind of brings to mind one of Warren Buffet’s famous quotes – “Only when the tide goes out do you discover who has been swimming naked”.

Chart of the Day – AMD yet to make new highs

Among the hullabaloo around Nvidia, AMD stock secured a new record close but not an intraday all-time high. The stock surged 10.69%, but has risen by more in a single day, in May last year when it advanced 11.2%. This stock is being known to be watched by fund managers, along with TSMC and Broadcomm, with portfolio adjustment front and centre. That said, Nvidia is preparing product updates in March which may impact AMD.

Technically, the intraday top sits at $184.92. The stock has been consolidating for four weeks in a range around $163 and yesterday’s close. The daily RSI is not overbought whereas the weekly trades above 76 and through the Keltner channel.