The shorts will be running for the hills soon

Thoughts of the Day

Despite the strong performance of US stocks in recent months, there are still many skeptics, and naysayers. For them, the AI boom is a bubble waiting to burst. However, Nvidia’s strong earnings report shows that it is anything but that.

In a market that rises relentlessly, the more non-believers there are, the more comfortable we are of buying the dips. Stay on the path and keep riding the trend.

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Day Ahead

Nothing noteworthy on the horizon today.

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What Happened Yesterday

Market Movements as of New York Close 22 Feb 24

Fedspeak:
Jefferson (current voter, known centrist):
“Cautiously optimistic about inflation progress, likely due for a rate cut later this year.”
Harker (2026 voter, known centrist): “May rate cut is possible, but not the current forecast. A couple more months of positive data would convince Fed’s Harker of the need to cut.”
(Both Harker and Jefferson are remaining as neutral and data dependent as they can be.)

The US S&P Global Composite PMI dropped to 51.4 in February from the previous print of 52.9 in January, indicating a continued but slower expansion in private sector business activity. The Manufacturing PMI saw a slight improvement to 51.5 from 50.7, contrasting with the Services PMI, which decreased to 51.3 from 52.5. The survey highlighted a reduction in cost pressures for both manufacturers and service providers, with February witnessing the slowest rise in input prices since October 2020.

The ECB meeting accounts showed that the Committee is confident about the effectiveness of the monetary policy. Acknowledgment was made regarding the necessity for further advancements in the disinflation process, indicating that progress was still required. Members widely agreed that it was too soon to consider discussions on rate reductions, suggesting a cautious approach toward monetary easing. Indicators were also noted to suggest that core inflation rates have reached and came off their peak, signalling a shift in inflationary trends. Furthermore, the discussion highlighted that the risk associated with prematurely reducing policy rates outweighed the risk of doing so belatedly, underscoring a preference for a more deliberate approach in adjusting monetary policies.

In January 2024, the Euro Area’s inflation rate came in at 2.8% as expected, slightly lower than the +2.9% in December and still higher than the European Central Bank’s +2.0% target. The core inflation rate, excluding fluctuating food and energy costs, declined for the sixth month in a row to +3.3% as expected from +3.4%, the lowest since March 2022. Reaction in the EURUSD was muted

The US Treasury Yield curve inversion widened to 0.36% as the US 2-year bond yield rose +0.05% to 4.69% while the 10-year yield rose +0.01% to 4.33%. 

The US stock futures rose steadily through the Asian and London trading hours as optimism resumed following Nvidia’s stellar earnings post New York hours after the market closed on Wednesday. The S&P 500 futures were up +0.92% before the New York session began.

The US stock market opened higher from Wednesday. It then continued to power through the New York session as risk sentiment was strong. As a result, the S&P 500 gained +2.11% (high: +2.26%, low: +1.14%), the Dow Jones rose +1.18% (high: +1.39%, low: +0.49%) while the Nasdaq soared +3.01% (high: +3.18%, low: +1.88%).

Nvidia rose +9.07% in aftermarket trading following stronger than expected earnings results and continued to power higher when the market opened. It closed the day +16.4%. Earnings per share: $5.16 vs $4.64 expected. Revenue: $22.10 billion vs $20.62 billion expected. The AI chipmaker projects a strong quarter in Q1 ’24 with $24.0 billion in sales in the current quarter against expectations of $22.17 billion in sales.

The crypto market traded mixed with BTC down slightly more than 1% and ETH remaining relatively unchanged.
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Headlines & Market Impact

US weekly jobless claims fall as labor market remains tight

Notable Snippet: Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 201,000 for the week ended Feb. 17, the Labor Department said on Thursday. Economists polled by Reuters had forecast 218,000 claims for the latest week.

Claims are hovering at historically low levels, despite high-profile layoffs at the start of the year. Unadjusted claims declined 26,053 to 197,932 last week, the lowest level since last October. Claims in California, which were estimated by the state likely because of the holiday-shortened week, plunged 8,584. There were notable decreases in applications in Illinois, Kentucky, Michigan, New York and Texas.

Kentucky had seen a jump in filings in the prior week, attributed to layoffs in the automobile manufacturing and wholesale trade industries. Difficulties finding labour during and after the COVID-19 pandemic have generally left employers reluctant to reduce headcount.

Worker productivity has also risen while the economy continues to expand despite the Fed’s aggressive monetary policy stance. Policymakers at last month’s meeting continued to view the labour market as “tight,” the minutes showed, but several “noted that recent job gains were concentrated in a few sectors, which, in their view, pointed to downside risks to the outlook for employment.”

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After recent gains, Russia signals it could try to seize Kyiv again — saying the ‘regime must fall’

Notable Snippet: Deputy chairman of the Russian Security Council, Dmitry Medvedev, told Russian media agencies that Russia could “reach Kiev,” using the Russian spelling of the city, saying it could happen later, if not now.

“Where to stop? I don’t know … Will it be Kiev? Yes, probably it should be Kiev. If not now, then … maybe at some other phase in the development of this conflict,” Medvedev said in an interview with Russian media, including RIA Novosti, which published his remarks.

The comments suggest that, two years into the war and bolstered by recent gains, Moscow continues to harbour ambitions to conquer the whole of Ukraine and will not be content to occupy just a fifth of the country, as is currently the case.

In his latest interview, Medvedev commented that “this regime must fall, it must be destroyed, it must not remain in this world.”

Kyiv was a “Russian city,” he claimed, warning that in Ukrainian hands it was “a threat to the existence of the Russian Federation.”

“An international threat, because although Kiev is a Russian city in its roots, it is controlled by an international brigade of opponents of Russia led by the United States of America,” Medvedev said, echoing Moscow’s much-repeated claim that Western nations have coerced Kyiv into fighting Russia in a bid to destroy the country.

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European Central Bank posts first annual loss in two decades

Notable Snippet: The European Central Bank on Thursday reported its first annual loss since 2004, following hefty payouts because of higher interest rates.

It reported losses of 1.3 billion euros ($1.4 billion), which would have been steeper, had the bank not released 6.6 billion euros — its entire provision for financial risks, built up over a number of years.

The ECB said that it expected further losses for the following few years that would not impact “its ability to conduct effective monetary policy,” before returning to sustained profits.

The institution suffered increased interest expenses on key liabilities, while interest income on assets did not keep pace, because many are on fixed rates or have long maturities, it said.

It logged a net interest loss of 7.19 billion euros in 2023, after a 900 million euro income in 2022. 

Higher rates have pushed several national central banks to losses, including Germany’s Bundesbank and the Swiss National Bank.

While losses do not impact a central bank’s ability to enact the mandate of maintaining price stability, annual figures are watched as a measure of credibility, and can impact wider actions.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord