Risk rally falters as markets eye Nvidia earnings

Headlines

* Markets speculate on Fed’s next move, USD trades in the red

* S&P 500 and Nasdaq fall to start the week after Monday’s holiday

* Gold hits over one-week high as bond yields ease

* USD/CAD dips and rallies after Canadian CPI recedes faster than expected

FX: USD lost ground though clawed back some ground late in the day. The dip in the DXY initially took it below the 50% retrace level of the Q4 sell-off at 103.86. US yields drifted off their peaks as the risk rally took a hit too. Interestingly, the most recent CFTC futures report shows the first bullish bet on the USD since November. But seasonals point to tough going for the greenback through Q2 and Q3.

EUR ticked up to its 200-day SMA at 1.0826 before paring gains. The world’s most popular currency pair did close above the midpoint of this year’s drop at 1.0793. It also climbed out of its descending bear channel in place since the high in late December.

GBP is range trading again with cable trying to hold above 1.26. The 200-day SMA at 1.2564 has done a good job of supporting prices this month. Recent losses towards this level and 1.25 have attracted buyers. Prices need to get towards 1.27 to spark more upside.

USD/JPY edged traded around 150 on softer yields. Prices are consolidating last week’s upside break higher which touched 150.88. Of course, that ignited verbal intervention from the Japanese MoF.

AUD gained as China cut rates and boosted hopes of more stimulus to come. Support/resistance resides at 0.6571 with the 200-day SMA just below here. The aussie had slipped after the RBA minutes. Markets expect around 40bps of cuts this year.  USD/CAD softened past 1.35 after a sharp drop in CPI ramped up bets on potential rate cuts. Headline inflation fell to a near-three-year low at 2.9%, well below the 3.4% expected. The key core rate which the BoC watches also declined.

Stocks: US equities closed in the red for the first trading day of the week, though regained some of their losses towards the end of the session. The benchmark S&P 500 closed 0.6% lower to finish at 4975. Nasdaq 100 settled 0.79% at 17,546. The Dow Jones outperformed, finishing 0.17% down at 17,068. Chipmaker Nvidia stumbled ahead of its results released early Thursday morning, after the US close. Can the market darling justify its hefty valuation and continue to fuel AI mania? Walmart hit a record high after it forecast 2025 sales above estimates and lifted its annual dividend by 9%.

Asian futures are in the red. APAC stocks traded on Tuesday with modest losses with price action contained. The ASX 200 was dragged lower by miners after BHP reported flat underlying profits and cuts its dividend by 20%. The Nikkei 225 stalled near its 1989 record high. China stocks were rangebound, getting little uplift from the 5-year LPR cut by the PBoC.

Gold rose for a fourth straight day as bond yields lost some of their recent gains. Prices have bounced after falling through $2000 last week. The next upside level is around $2040. That is the halfway point of the November surge.  

Day Ahead – FOMC Minutes, Nvidia

There’s not too much top tier data this week out of the US. But Fed speakers and the minutes from the January meeting will be in focus. Any guidance around policy rates after Chair Powell ruled out a March cut will grab the market’s attention. But we’ve seen more strong data including jobs and CPI since the meeting so that may mean the minutes are somewhat dated. Balance sheet discussions around QT could be attract some headlines.

The key risk for markets is the last of the tech titan’s earnings results, with Nvidia reporting after the US close. It’s the chipmaker’s first quarterly report since its market cap surpassed Amazon and Alphabet to become the world’s third most valuable company. Three key things to watch out for will be: 1. Revenue from data centres which is projected at $17.06bn, 2. Is there enough supply from TSMC to meet short-term demand, and 3.CEO commentary around growth rates going forward with analysts expecting around 200% y/y growth in the first quarter.

Chart of the Day – Overbought Nvidia comes off its highs

Tellingly, the stock market darling sold off quite aggressively yesterday ahead of its results. Nvidia dropped over 4%, its worst loss in more than four months. It had surged over 50% this year alone, after rising 237% in value last year. Consensus expects earnings of $4.56 a share and revenue to rise to $20.6bn, a startling 240% increase. Options markets are pricing in a double-digit price swing in either direction. That kind of move on a $1.8trn+ company will cause volatility in tech stocks and the indices. As we noted yesterday, the chip giant has a 4% and 5% weighting in the S&P 500 and Nasdaq 100 respectively. We’ve drawn some Fibonacci levels from the swing low at the end of October to the recent record intraday high at $746.11. The first retracement comes in at $662.61, with the next major one (38.2%) at $610.95. That would be a roughly 12% move from yesterday’s closing price.

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