PETER’S BUSINESS & FINANCE BRIEFING – Thursday 21 November 2024, 06:00 Hong Kong
● China holds Loan Prime Rates steady as expected ● Xi calls on nations to uphold international free trade system ● Nvidia nearly doubles revenue on strong AI demand
Thursday’s Opening Call
Hang Seng (Hong Kong) Projected Open: 19,570 -135 points -0.7%
Nikkei 225 (Japan) Projected Open: 38,340 -12 points -0.0%
Quick Summary - 4 Things To Know Before Asian Markets Open
The People’s Bank of China kept its key lending rates unchanged at the November fixing yesterday, in line with market expectations. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3.1%. Meanwhile, the five-year rate, a reference for property mortgages, was held at 3.6%. Both rates remain at record lows following rate reductions in October and July.
Japan’s October trade data showed stronger than expected exports but a trade deficit for a fourth consecutive month of ¥461.2bn (US$3bn). Exports increased by 3.1% y/y to a three-month high of ¥9,427 billion, reversing a 1.7% decline in September that was a 43-month low and surpassing forecasts of 2.2% growth. Meanwhile, imports rose by 0.4%, decelerating from a downwardly revised 1.8% increase in the previous month but outperforming expectations of a 0.3% decline. It was the seventh month of increase in purchases.
Speaking at the G-20 summit in Rio, President Xi urged leaders to “oppose unilateralism and protectionism.” Xi said his nation was proof poverty can be eliminated, telling leaders “if China can make it, other developing countries can make it too.” Xi urged German Chancellor Olaf Scholz to help resolve a tariff dispute with the European Union over electric vehicles and told French President Emmanuel Macron that China didn’t want to see the war in Ukraine escalate, adding that Beijing would “continue to play a constructive role in its own way” to end the conflict.
US chipmaker Nvidia reported revenue nearly doubled in the last quarter on strong AI demand. Revenues were 94% higher on an annual basis at US$35.08 billion during the quarter ended October 27 versus US$33.16 billion expected by LSEG. That’s still a consecutive slowdown from the previous three quarters, when sales rose 122%, 262%, and 265%, respectively. Earnings per share were 81 cents adjusted versus 75 cents adjusted expected by LSEG. Nvidia said it expects about US$37.5 billion plus or minus 2% in current quarter sales, versus US$37.08 billion expected by analysts polled by LSEG. The results have been driven by Nvidia’s data centre business, which records sales from AI processors and related parts, and now makes up the vast majority of Nvidia’s revenue.
China Holds Loan Prime Rates Steady As Expected
The People’s Bank of China (PBoC) kept its key lending rates unchanged at the November fixing yesterday, in line with market expectations. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3.1%. Meanwhile, the five-year rate, a reference for property mortgages, was held at 3.6%. Both rates remain at record lows following rate reductions in October and July.
The latest decision reflected the PBoC's ongoing assessment of existing stimulus measures. There was “no immediate need to adjust the LPR this month,” said Bruce Pang, chief economist and head of research for Greater China at JLL, adding that the Chinese leaders were likely still assessing the impact of recent measures aimed at boosting the economy. The record-low net interest margins at Chinese commercial banks have limited their ability to support lower lending rates, Pang said, “while another policy rate cut before the end of the year seems unlikely, there remains potential for interest rate cuts in 2025.”
Since late September, Beijing has ramped up efforts to reverse an economic slowdown and achieve the 2024 growth target of “around 5%”, despite prolonged property sector weakness, low consumer and business confidence, and persistent deflation risks. The central bank is expected to launch more policy-easing measures in the coming months. In October, Governor Pan Gongsheng said the central bank might reduce the reserve requirement ratio by another 25 to 50 bps by year-end, contingent on liquidity conditions. Earlier this month, the Ministry of Finance unveiled a 5-year fiscal package totalling 10 trillion yuan (US$1.4tn) to tackle local government debt problems, while signalling more economic support could come next year.
In October, China reported slower-than-expected industrial production and fixed asset investment growth. The annual decline of real estate investment from January to October also steepened from a year ago. Only retail sales beat expectations, with a 4.8% year-on-year increase, indicating that recent stimulus had started seeping into certain sectors of the economy.
Morgan Stanley expects China’s growth to slow to around 4% in each of the next two years, citing a deflationary environment and rising trade tensions as risks. “We see a low limited chance that the Chinese government will front-load enough fiscal stimulus to target consumption and housing,” the analysts said. Goldman Sachs also estimated that China’s GDP growth could decelerate to 4.5% in 2025, from 4.9% this year, according to the bank’s research note on Monday. Donald Trump’s election victory, which is likely to bring higher tariffs on Chinese exports, has added to the uncertainty over China’s export-heavy economy.
Macau Retail Sales Plunge In Q3
Retail sales in Macau slumped by 19.1% year-on-year in the third quarter of 2024, a slower decline than a downwardly revised 27.0% plunge in the previous quarter, which was the steepest contraction in retail activity since the third quarter of 2022. This was the third consecutive quarter of decline. For the first three quarters of 2024, retail sales fell 21.2% compared to the same period in 2023. On a quarterly basis, however, retail sales grew by 2.9% in Q3 2024, rebounding sharply from a downwardly revised 24.6% slump in the previous quarter.
Macau’s outgoing Chief Executive, Ho Iat-seng, said on Tuesday he’s basically accomplished all of the promises set out in his election manifesto five years ago. Ho said his administration had to overcome many challenges during his five-year tenure, including the Covid pandemic that lasted three years. Ho also confirmed that the Macau government will continue to dish out MOP 10,000 to permanent residents and MOP 6,000 to non-permanent residents next year, saying his successor, Sam Hou-fai, agrees with the move.
Taiwan Export Orders Growth Beats Forecasts
Orders for Taiwanese exports increased by 4.9% year-on-year to US$55.5 billion in October, accelerating from a 4.6% gain in the previous month and easily surpassing economists’ forecasts of a 3.6% rise. The uptick was mainly driven by increased export orders for electronic products (11.2% vs. 10.5% in September). Among key trade partners, demand increased most in the USA (12.6%), followed by Japan (5.3%) and Europe (2.7%).
Japan Trade Gap Narrows Sharply
Japan’s trade deficit plunged to ¥461.25 billion (US$2.98bn) in October from ¥702.86 in the same month a year earlier, as exports rose much faster than imports. The latest figures missed economists' estimates of a shortfall of ¥360.4 billion. Exports increased by 3.1% y/y to a three-month high of ¥9,427 billion, reversing a 1.7% decline in September that was a 43-month low and surpassing forecasts of 2.2% growth. Exports were led by growth in semiconductor machinery (+42.6%). Exports of transport equipment fell 4.4%, weighed on by motor vehicles (-0.9%) and cars (-2.1%). Exports were higher to China (1.5%), Hong Kong (18.8%), Taiwan (12.2%), South Korea (10.5%), India (18.9%), and Russia (52.8%). Shipments to the ASEAN countries rose (7.5%), notably Singapore (40.5%), Thailand (2.7%), and Indonesia (6.0%). Conversely, sales fell to the US (-6.2%), Germany (-9.0%), and the EU (-11.3%).
Meanwhile, imports rose by 0.4%, decelerating from a downwardly revised 1.8% increase in the previous month but outperforming expectations of a 0.3% decline. It was the seventh month of increase in purchases, driven by computers (+46.0%). Imports rose from China (5.6%), Hong Kong (25.6%), South Korea (8.5%), India (56.2%), Vietnam (4.0%), and the EU (3.9%). Purchases from the ASEAN countries grew by 5.9%. Imports fell from the US (-0.7%), Germany (-0.6%), Russia (-5.0%), and the Middle East (-13.5%).
Daniel Hurley, global equities portfolio specialist at T. Rowe Price, said, “any escalation of tensions between the US and China on tariffs and trade is likely to weigh upon global trade and global growth. Japan, as an open and cyclical economy, will be impacted by any deterioration in global trade and the global economy.”
South Korea Producer Inflation Steady In October
Producer inflation in South Korea rose 1.0% from a year earlier in October, the same pace as the previous month, and remaining at the lowest level since November 2023. Costs continued to rise for electric power, water, and gas (4.2% vs 3.8% in September), services (2.2% vs 2.1%) and agricultural, forestry, and marine products (0.5% vs +3.8%). Prices fell for manufacturing products (-0.3% vs -0.5%). On a monthly basis, producer prices edged lower by 0.1%, after falling by 0.2% a month earlier.
Indonesia Leaves Interest Rates Unchanged As Expected
The Bank of Indonesia maintained its key interest rate at 6% during its meeting yesterday, as widely expected. This decision aims to bolster the stability of the Rupiah in response to rising geopolitical and global economic uncertainties, particularly developments in the United States. It also seeks to ensure that inflation remains within the target range of 1.5-3.5% for 2024 and 2025, while supporting sustainable economic growth. The Rupiah depreciated by 0.84% month-on-month, driven primarily by the broad-based strength of the US dollar and a global shift in investor preferences toward US assets following the outcome of the US elections. Indonesia’s annual inflation rate eased to 1.7% y/y in October from 1.8% in the previous month. This marked the lowest reading since October 2021 and remained well within the central bank’s target range. The overnight deposit and lending facility rates were also held at 5.25% and 6.75%, respectively.
Eurozone Wages Jump The Most Since Introduction of Euro
Wages in the Eurozone jumped 5.4% in the three months to September, up from 3.5% growth in the previous quarter, the most since the euro was introduced, the European Central Bank (ECB) said on Wednesday. The ECB had expected a material pick-up in the second half of 2024, due to big pay rises in Germany, where wages rose by 8.8% in Q3. But it forecasts a sharp decline in negotiated wage growth (excluding bonuses, overtime and other individual compensation) in the second half of 2025, to a rate consistent with its 2% inflation target. There are concerns that this wage surge could dampen expectations for aggressive rate reductions in 2025 with some officials cautioning against rapid moves, given persistent wage pressures in the services sector.
UK Inflation Accelerates Sharply In October
UK inflation accelerated sharply to 2.3% in October, the highest rate in six months, as energy prices rose. The annual consumer price index (CPI) figure from the Office for National Statistics (ONS) was a significant acceleration from September's 1.7% and exceeded forecasts of 2.2% by analysts. The largest upward contribution came from housing and household services (5.5% vs 3.8% in September), mainly electricity (-6.3% vs -19.5%) and gas (-7.3% vs -22.8%), reflecting the rise of the Office of Gas and Electricity Markets (Ofgem) energy price cap in October 2024. As well as energy costs increasing last month, services inflation, closely watched for domestic price pressures, ticked up to 5%, above the central bank's 2% target. Food price inflation remained unchanged from September, but alcohol and tobacco prices rose sharply. The jump in headline inflation was also fuelled by higher prices across the transport, household goods, recreation and hotel sectors, according to the ONS. Compared to the previous month, the CPI increased 0.6%.
Core inflation was 3.3% in October, higher than economists’ forecasts of 3.1%, and up from 3.2% in September, according to the ONS. On a monthly basis, core consumer prices rose by 0.4%, accelerating from a 0.1% increase in September and surpassing the consensus forecast of 0.3%.
The Bank of England (BoE) recently emphasised a cautious approach to monetary easing, citing economic uncertainty as officials gauge the impact of chancellor Rachel Reeves’ Budget, which included a steep increase in employer national insurance contributions. Earlier this month, the BoE cut borrowing costs by 25 bps to 4.75% but signalled that a further move was unlikely before 2025. The Monetary Policy Committee announces its next decision on interest rates on December 19. Following the release of the figures, investors trimmed their bets on the chance of a cut at December’s meeting from 20% to 15%. According to levels implied in the swaps market, traders are now predicting only two quarter-point reductions in 2025, down from three earlier this month.
Fed Governor Bowman Says Inflation Progress Has ‘Stalled’
Federal Reserve Governor Michelle Bowman said Wednesday that progress on bringing inflation back to the central bank’s goal has slowed. “We have not yet met our inflation goal and, as I noted earlier, progress in lowering inflation appears to have stalled,” Bowman said in remarks in West Palm Beach, Florida. “I see greater risks to the price stability side of our mandate, especially while the labour market remains near full employment, but it is also possible that we could see a deterioration in labour market conditions.” Bowman said she believes the neutral policy rate, the level of borrowing costs that neither bolsters nor brakes economic growth, is much higher than it was before the COVID pandemic, "and therefore we may be closer to a neutral policy stance than we currently think." She added, "we should also not rule out the risk that the policy rate may attain or even fall below its neutral level before we achieve our price stability goal."
The Fed reduced its policy rate earlier this month by a quarter of a percentage point to the 4.50%-4.75% range, a move that Bowman said she supported because it aligns with her preference for lowering short-term borrowing costs gradually. Bowman had cast a lone dissent on the Fed's half-percentage-point rate reduction in September. The annual core consumer price inflation rate in the United States, which excludes items such as food and energy, stood at a three-month high of 3.3% in October. The headline rate in the US accelerated to 2.6% in October 2024, up from 2.4% in September.
Xi Calls On Nations To Uphold International Free Trade System
President Xi Jinping warned against any efforts to unwind globalisation in his first major remarks since Donald Trump won the US presidential election after threatening to impose tariffs as high as 60%. The Chinese leader sought to portray himself as a champion of economic globalisation while attending the Asia-Pacific Economic Cooperation (APEC) and Group of 20 summits in South America last week and this week, a strategy he deployed during Trump’s first term. Xinhua quoted Xi as cautioning against "fragmentation of the world economy". Xi said the world had "entered a new period of turbulence and transformation". He said attempts to block economic cooperation and to break up the interdependence of the world were nothing but back-pedalling. "We should see to it that economic globalisation generates more positive outcomes and is taken to a new phase that is more dynamic, inclusive and sustainable," Xi said. Neil Thomas, a fellow for Chinese politics at the Asia Society Policy Institute’s Center for China Analysis, said, “Xi wants to position himself to third countries as the reasonable party in US-China relations, and the Trump administration as irresponsible if they do not maintain dialogue and guardrails.”
In more than a dozen meetings with world leaders over a week in South America, Xi repeatedly sought to win assurances that nations would uphold the international free trade system as Trump threatens to put 60% tariffs on Chinese goods. At the APEC summit, he made an appeal to “tear down the walls” impeding trade and investment, while at the G-20 he urged leaders to “oppose unilateralism and protectionism.” Xi said his nation was proof poverty can be eliminated, telling leaders “if China can make it, other developing countries can make it too.” He also continued to walk a tightrope regarding Russia’s invasion of Ukraine, which took centre stage after Putin spooked markets by removing some guardrails on the use of nuclear weapons.
During the meetings, Xi attempted to persuade leaders to avoid taking any drastic moves that could halt trade flows, as he worried that other nations could follow Donald Trump in imposing trade tariffs. Trump’s tariffs threaten to shave several percentage points off China’s annual GDP growth. On Tuesday, Xi urged German Chancellor Olaf Scholz to help resolve a tariff dispute with the European Union over electric vehicles and told French President Emmanuel Macron that China didn’t want to see the war in Ukraine escalate, adding that Beijing would “continue to play a constructive role in its own way” to end the conflict.
However, the Trump tariffs will leave little room for nations to export their way to growth, even as Xi looks to sell more goods to emerging markets to offset the loss of exports to the US. Goldman Sachs says that steeper trade restrictions on China may force Xi’s hand to bolster domestic consumption. His government disappointed investors earlier this month by failing to unleash new stimulus, although Finance Minister Lan Fo’an promised “more forceful” fiscal policy next year, something that may be more essential if other nations hit China with tariffs in response to Trump.
Xi is looking particularly to develop ties in South America. President Xi launched his week-long diplomatic blitz of South America by inaugurating a massive deep-water port in Peru, a US$1.3 billion investment by Beijing as it seeks to expand trade and influence on the continent. More than 120 Chinese businesspeople travelled with Xi to Peru to negotiate deals, amid concerns that Washington is letting opportunities slip by in a resource-rich region eager for American investment. Xi spent a full day on Wednesday with Brazilian President Luiz Inácio Lula da Silva as the two leaders challenge US leadership in multilateral institutions. Even Javier Milei, who vowed to freeze ties with China on the campaign trail last year, told Xi that Argentina wants to be a “stable, reliable” partner in their first-ever meeting.
However, Xi has been sidelined by the escalation of the Ukraine war and reports that North Korea will send more troops to aid Russia as Ukraine fires missiles deep into Russian territory for the first time. China’s readouts have avoided the repeated questions that Xi received in meetings about Putin’s war on Ukraine. Xi acknowledged to South Korean President Yoon Suk Yeol that “a lot has changed” in the region. He separately told Biden that China doesn’t “allow conflict and turmoil to happen on the Korean Peninsula” and it will not “sit idly by when its strategic security and core interests are under threat.” Patricia M Kim, a fellow at the John L. Thornton China Center and the Brookings Institution said, “this is likely an uncomfortable position for Beijing. The last thing China wants is a war on its doorstep.”
US Advisory Panel On China Backs Repeal Of Preferential Trade Status
The US-China Economic and Security Review Commission (USCC) has recommended repealing China’s preferential trade status. This marks a significant shift in US trade policy towards China. In its annual report to Congress, the USCC called for the first time for ending permanent normal trade relations with Beijing. This would roll back a nearly 25-year-old decision that helped bring about China’s rapid economic growth but that many in Washington now see as hurting US interests.
The commission argues that China benefits unfairly from current trade terms despite engaging in questionable practices. China received permanent normal trade relations (PNTR) status in 2000. This allowed China to enjoy the same trade benefits as US allies. In exchange, China promised to open its markets and reform its trade practices ahead of joining the World Trade Organisation. However, concerns have grown over China’s adherence to these commitments. The commission’s report highlights issues like intellectual property theft and market manipulation. These practices have long frustrated US policymakers and businesses. “It’s fair to assume that China will probably never live up to its WTO commitments,” Jacob Helberg, one of the commissioners, said on Monday. Revoking PNTR status could give the US more leverage in addressing these concerns. If implemented, this change could lead to higher tariffs on Chinese goods and could trigger annual reviews of China’s trade practices, as was done before its PNTR was approved. The USCC, an independent panel set up by Congress in October 2000, reports to lawmakers about the national security implications of the US-China trade and economic relationship.
Tokyo Metro To Replace MTR In Running London’s Elizabeth Line
Tokyo Metro has secured a landmark contract to operate London’s Elizabeth Line, replacing the current operator, Hong Kong’s MTR. The subway operator has promised to boost the frequency of services on London’s newest train line as part of a consortium that also includes UK transport group Go Ahead and Japanese trading house Sumitomo Corporation. Tokyo Metro said that it would leverage its “expertise in realising high-quality railway services with outstanding safety and punctuality” and will “work to improve operations and increase the number of services”.
About 99% of Tokyo Metro’s services came within five minutes of their scheduled time in 2022, according to its latest sustainability report. The Elizabeth Line has suffered from some reliability problems since its launch in 2022. Between April and June this year, 83% of Elizabeth Line trains were on time, defined as arriving within a minute of their scheduled time. The decision means that the incumbent Elizabeth Line operator MTR, which has run the line since it launched and is 75% owned by the Hong Kong government, was unsuccessful in its bid to win a new deal starting in May. The contract, which is for seven years with the option to extend for up to two more years, will leave the Elizabeth Line as one of the last parts of the UK railway to be operated by the private sector. The Labour government has pledged to fully renationalise the main UK rail network within five years. But Transport for London (TfL) will continue to use contractors to operate many of its services. TfL said the consortium would be “bringing the best parts of Tokyo and London to the Elizabeth Line”.
Archegos Founder Bill Hwang Sentenced To 18 Years In Prison
Former Wall Street trader Bill Hwang has been sentenced to 18 years in prison, after the Archegos founder was earlier this year found guilty of orchestrating a massive market deception that cost Wall Street banks more than US$10 billion. Judge Alvin Hellerstein on Wednesday sentenced the 60-year-old, who was convicted of fraud and market manipulation in July. During the eight-week trial Hwang was shown to have used secretive trading strategies to quietly drive up the share price of media and technology groups including Discovery, Viacom and Tencent. Hwang's borrowing helped him amass US$160 billion of exposure to stocks before a series of adverse events led to a sudden sell-off in March 2021. His downfall occurred when Hwang was unable to meet margin calls, as the prices of some of his favourite stocks began falling and various banks unloaded stocks that had backed his so-called total return swaps. More than US$100 billion of market value in Hwang's stocks was wiped out. Several banks suffered losses, including Credit Suisse, which lost US$5.5 billion. Credit Suisse is now part of UBS.
Billionaire Gautam Adani Charged In New York With Massive Fraud
Gautam Adani, the chair of India’s Adani Group conglomerate and one of the world’s richest people, has been indicted in New York federal court with other defendants in connection with an alleged multi-billion-dollar fraud scheme, authorities said Wednesday. CNBC reported that Adani and two other defendants, Sagar Adani and Vneet Jaain, who are executives of Adani Green Energy Limited, are accused of conspiring to commit wire fraud and securities fraud for their roles in obtaining funds from investors in the United States and international lenders “on the basis of false and misleading statements,” the US Attorney’s Office in Brooklyn said. “The defendants orchestrated an elaborate scheme to bribe Indian government officials to secure contracts worth billions of dollars and Gautam S. Adani, Sagar R. Adani and Vneet S. Jaain lied about the bribery scheme as they sought to raise capital from US and international investors,” said US Attorney Breon Peace.
The indictments threaten to reignite a public relations crisis for the conglomerate, which spent much of last year trying to move past the damaging claims of accounting fraud and stock market manipulation made by US short seller Hindenburg Research.
Asian Markets Mixed
Equity markets in Asia-Pacific were mixed on Wednesday. Japan’s Nikkei 225 closed 0.2% lower at 38,352, despite a weaker yen. Japan’s October trade data showed stronger than expected exports but a trade deficit for a fourth consecutive month of ¥461.2bn (US$3bn). Seven & i shares rose 6.5% after Japanese broadcaster NHK reported the Ito family, who founded Seven & i, was raising more than US$50 billion to complete a deal to take the company private before the end of February. Tokyo Gas jumped 13% following news that activist fund Elliott Management had built a large stake in the Japanese natural gas group.
Vietnam’s benchmark VN-Index outperformed the region with a 1.0% gain. South Korea’s Kospi rose 0.4%. Taiwan’s Taiex closed 0.7% lower. Australia’s S&P/ASX 200 was also lower, by 0.6%, retreating from a record high the prior day.
China Markets Slightly Higher
Chinese markets struggled for direction on Wednesday as China’s central bank kept key lending rates unchanged after cutting them in October, as widely expected. Trading on the mainland and in Hong Kong was muted as growing Sino-US tensions following Donald Trump’s election as the next US president, along with persistent economic uncertainties in China, continued to dampen investor sentiment. China’s CSI 300 index closed 0.2% higher at 3,986.
In Hong Kong, stocks rose for a third day. The Hang Seng index was 41 points, or 0.2% higher, at 19,705. The Hang Seng Index has dropped 15% from an October high after rallying on China’s measures to bail out the property market and lower interest rates. The Tech Index rose 0.4%.
Bloomberg News calculated that 35 listed companies in Hong Kong have reported quarterly results, with an average profit increase of 0.1% from a year earlier, compared to a 7.3% profit rise in the prior quarter.
European Markets Lower
European stocks closed lower on Wednesday as investors remained concerned about escalating tensions in Ukraine after Kyiv used US-made Atacms missiles deep in Russia for the first time on Tuesday. The pan-European Stoxx 600 closed less than 0.1% lower. London’s FTSE 100 closed down 0.2%, after UK inflation jumped more than expected.
Shares in the UK-based accounting software group Sage soared 17.9%, leading gains on the region-wide Stoxx 600 index, after it reported a 20% rise in annual profits and launched a £400mn share buyback. Lottery operator La Française des Jeux shed 4.4% after lender Crédit Agricole said it was selling 4.07mn of the group’s shares.
In its annual Financial Stability Review, published on Wednesday, the ECB sounded the alarm over a potential return of “market concerns over sovereign debt sustainability”. It pointed to “elevated debt levels and high budget deficits” as well as election outcomes in Europe. The Eurozone risks another debt crisis if the bloc cannot boost growth, lower public debt and fix “policy uncertainty”, the ECB warned. Spreads between French and German 10-year government bonds, a key gauge of investors’ concerns, this month rose to 77 bps, close to the 12-year high reached in the run-up to this summer’s parliamentary election. The spread is currently at 75 bps.
US Stock Markets Wait For Nvidia
US stocks closed little changed Wednesday, recovering from a bout of volatility following the escalation in Russia’s war against Ukraine. Sentiment was also boosted after Vladimir Putin said he was open to discussing a ceasefire deal with Trump but is ruling out any territorial concessions. However, risk off was later seen in wake of reports that Ukraine fired a UK storm shadow missile into Russia, weighing on stocks and supporting Treasury notes off their lows.
All eyes were on the biggest earnings report of the quarter, from Nvidia, after the market closed. The chipmaker is the world’s biggest company, with a US$3.6 trillion market value after the stock tripled this year and is nearly as big as the DAX and CAC combined. Strategists at Barclays say the earnings report is the most important market catalyst for the rest of the year, even bigger than the next readings on US inflation and jobs or the Fed’s December policy meeting. The options-implied move for Nvidia shares the day after earnings is about 8% in either direction, according to data compiled by Bloomberg. That would equate to close to a US$300 billion swing in market value, bigger than all but 25 companies in the S&P 500 Index.
In regular trading, before Nvidia’s results were announced, the Dow industrials closed 140 points, or 0.3% higher, at 43,408. The S&P 500 was flat at 5,917, after falling nearly 1% earlier in the session. Nvidia stock fell in afternoon trading Wednesday, ending 0.8% lower, weighing on the Nasdaq Composite. The tech heavy index slipped 0.1% to 18,966.
Target was also in focus during regular trading. Target shares dropped over 21% after the US retail chain reported a 12.1% year-on-year drop in third-quarter net profit to US$854mn. Analysts had been expecting a rise in earnings to more than US$1bn. The company also lowered profit guidance for the current fiscal year. Executives attributed the sharp decline in profits to weakness in sales of discretionary products and because of costs related to importing more products than usual before what became a short-lived dockworker strike this autumn. The results underscore how the labour stand-off affected the US economy.
Nvidia Nearly Doubles Revenue On Strong AI Demand
After the bell, Nvidia reported revenue nearly doubled on strong AI demand. Revenues were 94% higher on an annual basis at US$35.08 billion during the quarter ended October 27 versus US$33.16 billion expected by LSEG. That’s still a consecutive slowdown from the previous three quarters, when sales rose 122%, 262%, and 265%, respectively. Earnings per share were 81 cents adjusted versus 75 cents adjusted expected by LSEG. Nvidia said it expects about US$37.5 billion plus or minus 2% in current quarter sales, versus US$37.08 billion expected by analysts polled by LSEG. Net income during the quarter rose to US$19.3 billion, or 78 cents per share, versus US$9.24 billion, or 67 cents per share in the year-ago period.
The results have been driven by Nvidia’s data centre business, which records sales from AI processors and related parts, and now makes up the vast majority of Nvidia’s revenue. Nvidia posted US$30.8 billion in its data centre division, while analysts polled by StreetAccount were expecting US$28.82 billion in revenue. Nvidia has been the primary beneficiary of the ongoing artificial intelligence boom.
Nvidia’s CFO Colette Kress said in a statement that Blackwell production shipments are scheduled to begin in the current quarter and will ramp up next year. The company also said that its current-generation AI chip, the H200, “grew significantly in the quarter.” “Both Hopper and Blackwell systems have certain supply constraints, and the demand for Blackwell is expected to exceed supply for several quarters in fiscal 2026,” Kress said in a statement.
Shares of Nvidia fell 1% in after-hours trading. Its shares have nearly tripled so far in 2024, making it the most valuable publicly traded company.
Treasuries Slip Following Weak US Debt Auction
Treasuries slipped as the latest auction for longer-term government debt was met with muted demand. A government sale of 20-year Treasuries on Wednesday afternoon drew a yield of 4.68% at auction, compared with a pre-sale yield of 4.65%. The higher yield, reflecting weaker demand for the debt instrument, helped push up yields on shorter-dated securities. The yield on the 10-year Treasury climbed 3 bps to 4.41%, while that on the two-year note was up 4 bps to 4.31%.
The odds of a December rate cut slipped from 59% to 52% overnight according to swaps markets. The move came after Fed Governor Michelle Bowman said progress on inflation “seems to have stalled in recent months.”
US Dollar Strengthens
The dollar climbed against a basket of currencies after a three-day drop. The US Dollar Index rose 0.5% to 106.
The yen resumed its slide against the US dollar, leading losses among Asian currencies. The yen weakened 0.5% on Wednesday to ¥155.38 per dollar.
The offshore yuan depreciated 0.2% to around Rmb 7.25 per dollar, marking its second consecutive session of losses. The People's Bank of China opted to leave key lending rates unchanged in its November fixing, in line with market expectations.
The euro weakened 0.5% to $1.0538, approaching one-year lows of $1.0496 touched last week, pressured by broad-based dollar strength and mounting concerns about the downside risks to the Eurozone economy. In its annual Financial Stability Review, the ECB highlighted that heightened geopolitical tensions and policy uncertainties are amplifying sovereign vulnerabilities, while rising global trade tensions are increasing the likelihood of adverse economic shocks. Additionally, the prospect of an escalation in the Russia-Ukraine conflict further weighed on the common currency. The prospect of the US introducing a swathe of new tariffs under President-elect Donald Trump has led economists to say the euro could return to parity with the US dollar in their 2025 outlooks.
The pound weakened despite UK inflation rising to 2.3% in October, above economists’ expectations of 2.2%, and up on September’s 1.7%. Sterling was down 0.2% at $1.2645.
Gold Rises For Third Day
Gold was higher for the third day in a row despite the move upwards in Treasury yields. Spot gold climbed 0.7% to $2,649 per troy ounce. Gold will rally to $2,900 an ounce by the end of next year, according to UBS, echoing a call from Goldman Sachs for further gains as central banks expand their holdings.
Oil Eases
Oil hovered around $73 a barrel as traders weighed geopolitical tensions against growing US crude supplies. Ukraine deployed Western-made cruise missiles for the second time, leading to heightened nuclear threats from the Kremlin. Crude oil inventories in the US rose by 0.545 million barrels in the week ended November 15, 2024, above market expectations of a 0.4 million build, data from the EIA Petroleum Status Report showed. Brent crude oil settled 0.4% lower at $73.08 per barrel.
Bitcoin Hits New High
Bitcoin hit a fresh high of almost $95,000 on Wednesday, with many traders betting that the world’s biggest cryptocurrency will hit $100,000 before the end of this year. The token was trading at $94,420 Wednesday afternoon EST, more than double its value of about $43,600 at the start of this year and up from less than $70,000 before Donald Trump’s victory in the US election on November 5.
Peter Lewis’ Money Talk Podcast
On Thursday’s “Peter Lewis’ Money Talk” podcast, I’ll be joined by Andrew Freris, the CEO of Ecognosis Advisory, David Roche, President & Global Strategist at Quantum Strategy, and Richard Harris, Chief Executive Officer at Port Shelter Investment Management.
The podcast is also available on Apple Podcasts, YouTube Studio and Spotify.
Spotify
YouTube Studio
https://www.youtube.com/playlist?list=PLnwqOJD9ie5gHH29bNfuG1Nscy8rdJo6O
Apple Podcasts
This podcast is sponsored by Surfin Group, which is headquartered in Singapore and offers online financial services to 50 million customers across 9 countries. You can find out more about them by going to their website www.surfin.sg
