The Week Ahead
We started the shortened week (in the US at least) with the news that the People’s Bank of China (PBoC) increased its support for its troubled real estate sector by implementing the largest cut in recent years to the crucial mortgage benchmark rate, the Loan Prime Rate (LPR). The move heightened anticipation for more robust efforts to bolster the economy in the upcoming months. Chinese lenders slashed their five-year LPR by 25bps to 3.95%, the central bank announced. It was the first cut since June and the largest reduction since a revamp of the rate was rolled out in 2019. The one-year LPR remained unchanged at 3.45%.
China’s authorities hope lowering the rate will help stimulate demand for properties that have been in freefall in recent months. The move shows an intensifying focus on measures to combat the property crisis, which has been a major drag on the world’s second-largest economy, along with its stock markets’ woes, threatening the path towards sustainable growth.
Here in the UK the Office for National Statistics (ONS) reported that Britain had its largest ever budget surplus in January, providing a significant boost for Chancellor Jeremy Hunt ahead of his upcoming fiscal announcement next month, the last before the next general election. The ONS reported that tax income outstripped expenditures by nearly GBP17bn, a figure that is over twice the surplus recorded last year. Consequently, the budget deficit for the first ten months of the fiscal year stood at GBP97bn, which is just over GBP9bn lower than the forecast by the Office for Budget Responsibility.
Midweek we had the two events that many had been waiting for, Nvidia’s results and the FOMC minutes from January.
Called by some as “The most important stock on earth”, the options pricing for Nvidia stock implied a move of over 10% in either direction after the results. As it was, the figures blew the doors off. The company, a core holding in the EPIC Global Equity Fund, delivered another blockbuster set of results which once again beat market expectations both on the top and bottom line.
Nvidia’s revenue in the January quarter was USD22.1bn, up 22% sequentially against very strong comparatives. Year-on-year, revenue was up 265%. Revenues from the all-important Data Centre division were up 27% sequentially and up 409% year-over-year. At USD18.4bn Data Centre revenue in this quarter was well ahead of the USD15bn Nvidia generated in the whole of last year.
The stock rallied by over $100 in trading sessions after the results, to close at $788 on Friday, up nearly 60% YTD.
However, The FOMC minutes from the January meeting were the complete opposite, revealing little on monetary policy direction. The minutes reiterated the Fed’s intention to wait for "greater confidence" in inflation moving sustainably towards a 2% target and emphasised the need for patience. Only a "couple" of officials seemed inclined to cut rates earlier due to the current restrictive policy stance compared to their colleagues.
We also had Japan’s Nikkei finally reclaiming its historic peak last reached more than three decades ago as investors continued to pour money into a country that has finally escaped deflation and is on a path to sustainable growth.
Over the week treasuries were range bound, with the 10-year finishing at 4.24%, just 4bp lower, with the 30-year 7bp lower at 4.37%. The dollar came under pressure, with the DXY index finishing the week lower at 103.93, breaking 104 for the first time since the start of February. US equities continue to gain ground. The S&P was up 1.66% on the week, topping 5,100 for the first time, while the Nasdaq gained 1.4%. The Dow is up 1.3%.
This week, all eyes will be on the US PCE reading, the Fed’s preferred gauge of inflation, along with consumer confidence, and the ISM PMIs. We will also hear from 10 Fed speakers throughout the week. February’s CPI data will be the highlight on this side of the pond, with Germany, France and Spain all reporting on Thursday. The rest of the EU reports on Friday. We also have China manufacturing and Caixin PMI and Japan IP and retail sales to look out for.
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