Chief Investment Strategist
Summary: S&P 500 futures are breaking below key support levels and Hang Seng futures are making new lows for the year as Evergrande's bankruptcy protection filing in the US has sparked more nervousness over developments in Chinese markets. We highlight all the key events shaping markets heading into the weekend. We also discuss Nvidia's earnings next week which will be a key test for AI stocks and then finally we discuss the sudden collapse in Adyen.
Key tests across many markets into the weekend
Risk-off continues into the weekend across markets and below are the key events shaping markets.
Next week’s earnings from Nvidia will be a key test for markets and especially the cluster of AI related stocks that have rallied significantly this year. Nvidia reports FY24 Q2 (ending 31 July) earnings on Wednesday after the US market close with analysts expecting revenue of $11bn up 65% y/y and EBITDA of $6.3bn up from $924mn a year ago as demand for AI research and deployment has exploded since the successful launch of OpenAI’s ChatGPT. As we have highlighted in several notes it looks like it is especially Chinese technology companies that are driving the demand bonanza because China has realized that the country is behind on AI and has instructed their technology companies to catch up quickly. In fear of the Biden administration making further export restrictions Chinese technology companies are right now hoarding modified GPUs from Nvidia. So the key test is whether Nvidia is maintaining its fiscal year outlook or demand is already cooling after the initial splurge.
The other earnings releases next week are highlighted below.
Nobody had seen it coming. Adyen was heralded as a leader in the payments industry with solid growth but yesterday’s shocking earnings release showed a significant miss on volume and EBITDA due to significant cost pressures and too much hiring in its North America business. Adyen shares are down 2.5% today adding to the 39% decline yesterday as the company’s long-term operating margin guidance has come into question over increased competition. The problem for shareholders is now to find out what is the long-term growth and more importantly margin. Compared to other payment stocks Adyen is still valued at a premium and thus there is still downside risk to the stock.
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.
