Global Economy & Markets, Weekly Roundup 27/05/24
Global equities took a breather as investors are turning their attention to inflation data
The start of the global rate cutting cycle is around the corner, as inflation has decelerated significantly across the board. Central banks are set to remove the top level of restriction, albeit rates will remain in restrictive territory in the next 6-9 months due to still high services inflation and elevated geoeconomic uncertainty.
Investors’ attention will turn to the US PCE inflation announcement on May 31st, with consensus expecting the core index to increase by +0.3% mom in April (+2.8% year-over-year) following average monthly gains of +0.36% in Q1. More importantly, figures for euro area May inflation are due on Friday, with core CPI expectations at +2.7% yoy from +2.7% in April and +5.3% in May 2023.
Risk free rates increased in the past week (Bund 10-year: +7 bps wow to 2.58% | US Treasury 10-year: +5 bps wow to 4.47%), in view of strong economic data in Europe and hawkish elements in the minutes of the April 30th – May 1st Fed meeting.
The euro area composite PMI rose further in May by +0.6 pts to a 12-month high of 52.3 pointing to real GDP growth of +0.3% qoq (+0.5% yoy) in Q2:2024 and matching the Q1 quarterly growth (+0.4% yoy) following five quarters of stagnation.
The MSCI ACWI fell by -0.4% wow (+9% ytd) with emerging markets underperforming by circa -120 bps (-340 bps year-to-date). The S&P500 was broadly flat. Regarding US sectors, the Semiconductor & Semiconductor Equipment index overperformed by +9.2% wow (+55% ytd) due to NVIDIA (+15% wow & +115% ytd), following its financial report for Q1:2024.
NVIDIA reported EPS of $6.12 (+461% yoy) versus consensus estimates for $5.57, on revenue of $26 billion (+262% yoy). In addition, revenue guidance for Q2:2024 came out at $28 billion, above consensus for $26.6 billion. With the stock price having now surpassed the $1000 mark ($1065 as of May 24th), a 10-for-1 split was announced, likely aiming at facilitating more retail buying interest.
Α large share of NVIDIA’s revenues relies on a few large cloud providers like Microsoft, Google, Amazon and other Big Tech names. These clients currently deploy NVIDIA AI infrastructure at scale, albeit many of them are also in the process of rolling out their own AI accelerator chips. Nevertheless, NVIDIA’s share price has increased by circa +529% since the November 2022 release of ChatGPT and market capitalization has reached $2.62 tn or 5.9% of S&P500 (see graph page 3).
In the United Kingdom, Prime Minister Sunak announced snap General Elections for July 4th. The governing Conservative Party lags substantially behind the Labour Party in polls (22% versus 44%). The upcoming Elections are not expected to amend the path back to lower policy interest rates by the Bank of England in the second half of 2024, unless the Labour Party unveils a drastic shift in fiscal governance, a low likelihood scenario in our view given Liz Truss’s disastrous £30 billion mini budget in 2022 and her disordered 49 days as UK Prime Minister.
The British Pound appreciated slightly against the euro by +0.6% wow to EUR/GBP 0.85, while UK Gilt yields climbed by +13 bps wow to 4.26% (10-year), albeit due to higher-than-expected domestic inflation.
The start of the global rate cutting cycle is around the corner, as inflation has decelerated significantly across the board. Central banks are set to remove the top level of restriction, albeit rates will remain in restrictive territory in the next 6-9 months due to still high services inflation and elevated geoeconomic uncertainty.
Investors’ attention will turn to the US PCE inflation announcement on May 31st, with consensus expecting the core index to increase by +0.3% mom in April (+2.8% year-over-year) following average monthly gains of +0.36% in Q1. More importantly, figures for euro area May inflation are due on Friday, with core CPI expectations at +2.7% yoy from +2.7% in April and +5.3% in May 2023.
Risk free rates increased in the past week (Bund 10-year: +7 bps wow to 2.58% | US Treasury 10-year: +5 bps wow to 4.47%), in view of strong economic data in Europe and hawkish elements in the minutes of the April 30th – May 1st Fed meeting.
The euro area composite PMI rose further in May by +0.6 pts to a 12-month high of 52.3 pointing to real GDP growth of +0.3% qoq (+0.5% yoy) in Q2:2024 and matching the Q1 quarterly growth (+0.4% yoy) following five quarters of stagnation.
The MSCI ACWI fell by -0.4% wow (+9% ytd) with emerging markets underperforming by circa -120 bps (-340 bps year-to-date). The S&P500 was broadly flat. Regarding US sectors, the Semiconductor & Semiconductor Equipment index overperformed by +9.2% wow (+55% ytd) due to NVIDIA (+15% wow & +115% ytd), following its financial report for Q1:2024.
NVIDIA reported EPS of $6.12 (+461% yoy) versus consensus estimates for $5.57, on revenue of $26 billion (+262% yoy). In addition, revenue guidance for Q2:2024 came out at $28 billion, above consensus for $26.6 billion. With the stock price having now surpassed the $1000 mark ($1065 as of May 24th), a 10-for-1 split was announced, likely aiming at facilitating more retail buying interest.
Α large share of NVIDIA’s revenues relies on a few large cloud providers like Microsoft, Google, Amazon and other Big Tech names. These clients currently deploy NVIDIA AI infrastructure at scale, albeit many of them are also in the process of rolling out their own AI accelerator chips. Nevertheless, NVIDIA’s share price has increased by circa +529% since the November 2022 release of ChatGPT and market capitalization has reached $2.62 tn or 5.9% of S&P500 (see graph page 3).
In the United Kingdom, Prime Minister Sunak announced snap General Elections for July 4th. The governing Conservative Party lags substantially behind the Labour Party in polls (22% versus 44%). The upcoming Elections are not expected to amend the path back to lower policy interest rates by the Bank of England in the second half of 2024, unless the Labour Party unveils a drastic shift in fiscal governance, a low likelihood scenario in our view given Liz Truss’s disastrous £30 billion mini budget in 2022 and her disordered 49 days as UK Prime Minister.
The British Pound appreciated slightly against the euro by +0.6% wow to EUR/GBP 0.85, while UK Gilt yields climbed by +13 bps wow to 4.26% (10-year), albeit due to higher-than-expected domestic inflation.