Macro Matters – Weekly review, w/c February 26

TradeDay Macro Matters

Macroeconomic / Geopolitical Developments

• Stock averages dip and surge pre- and post-Nvidia results

• Nvidia results beat, as “the most important stock on planet earth” surges

• Fed Minutes and Speakers push back on early rate cuts, market listens

• US bond yields move higher on rate cut pushback

• Global Flash PMI data mixed

Stock Averages Dip and Surge Pre- and Post-Nvidia Results

Nvidia’s much-anticipated earnings report caused turbulence in US markets, with futures dipping ahead of the announcement. However, the semiconductor giant’s impressive results, which included an 11% post-report stock surge, propelled the Dow, S&P 500, and Nasdaq Composite to record highs. Nvidia’s strong performance underscored its pivotal role in the AI-driven market rally, boosting optimism across technology stocks and reaffirming its influence on market sentiment.

Nvidia Results Beat Expectations

Nvidia reported Q4 EPS of $5.16, surpassing estimates of $4.61, with revenue of $22.1 billion against a forecasted $20.55 billion—a staggering 265% year-over-year increase. This performance, driven by AI chip demand, solidified its status as a bellwether in the tech sector. Dubbed “the most important stock on planet earth” by Goldman Sachs, Nvidia’s stock has soared over 200% in the past year, highlighting its central role in the ongoing AI revolution and the broader market’s trajectory.

Fed Minutes and Speakers Push Back on Early Rate Cuts

The Federal Reserve’s minutes revealed a cautious approach to rate adjustments, emphasizing the need for inflation to firmly reach the 2% target before considering cuts. Despite maintaining rates at 5.25%-5.5%, Fed officials reiterated that rate reductions were not imminent, pushing market expectations for the first cut to June, with four cuts anticipated in 2024. Chair Jerome Powell reinforced this position, highlighting the risks of premature easing.

US Bond Yields Move Higher on Rate Cut Pushback

US Treasury yields climbed to their highest in two months as markets adjusted to the Fed’s stance against swift rate cuts. Persistent inflation and a resilient labor market forced traders to reevaluate expectations, shifting sentiment towards delayed monetary easing. This recalibration reflected in higher derivative contract yields, underscoring the market’s cautious outlook.

Global Flash PMI Data Mixed

• US: February’s PMI data showed continued economic expansion, with manufacturing achieving its fastest growth in ten months despite a slowdown in the service sector.

• UK: The services PMI held steady at 54.3, while manufacturing slipped to 47.1, signaling continued challenges but overall economic resilience with a composite PMI of 53.3.

• Germany: Manufacturing PMI fell sharply to 42.3, signaling deepening contraction, though services showed modest improvement.

• Eurozone: Composite PMI exceeded forecasts, driven by service sector gains. France outperformed Germany across metrics, indicating uneven recovery within the bloc.

What’s Ahead

Central Bank Watch:

• Wednesday: Reserve Bank of New Zealand interest rate decision.

Macro Data Watch:

• 02/27/2024: Japan CPI, German Gfk Consumer Confidence, US Durable Goods, and Consumer Confidence.

• 02/28/2024: EU Consumer Confidence, US GDP, and PCE (QoQ).

• 02/29/2024: German Retail Sales, Unemployment, and CPI; US PCE (MoM, YoY).

• 03/01/2024: Global Manufacturing PMI, EU Unemployment and CPI, US Michigan Consumer Sentiment Index.

The week’s focus will be on key data releases, particularly PCE and PMI figures, which will shape market expectations for economic growth and monetary policy adjustments.

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