European stock markets continue to tread water. The major bourses are a little higher early on Wednesday but no great shakes. On Wall Street, tech rallied again on Tuesday, with Nvidia rising about 5% ahead of earnings. Oil prices firmed up again whilst gold retreated overnight on Wednesday after two days of gains with Treasury yields and the dollar a bit firmer. Bitcoin is above $93k.
Tesla led a bounce in tech stocks Monday and extended gains yesterday on reports that president-elect Trump is looking to ease the regulatory path for the company’s autonomous driving software. But as we discussed last week on the podcast with Mark Spiegel from Stanphyl Capital (a long time Tesla bear it should be said), Full Self Driving (FSD) does not work.
Nvidia earnings is the main event today. company its top large-cap pick as it cited the launch of Nvidia’s upcoming Blackwell chip and lead within artificial intelligence. Investors will be hungry for guidance on the new chips. Nvidia’s Blackwell chip should become available in the first quarter of next year and could bring in between $5 billion and $8 billion, according to Piper Sandler.
“As supply improves, we see more customers coming on for Blackwell beyond initial hyperscaler adoption in the following April quarter,” analyst Harsh Kumar wrote. “Given expanded GPU allocations and initial shipments of the Grace Blackwell for inference applications, we are projecting Blackwell architecture revenues could increase to the tune of 200%+ in the April quarter following supply constraints.”
And Nvidia could trigger a sizeable amount of volatility in the S&P 500. Options imply around a 12% in the stock alone, and the implied broader market moves stand at around 1% – more than the NFP or CPI prints.
Top Trumps
Howard Lutnick has been chosen as Trump’s commerce secretary – ie the one to drive trade policy and tariffs. A win for team Cantor, but it leaves open the Treasury Sec position, which is the more important. Marc Rowan of Apollo Global Management is said to be the frontrunner now. Hedge fund boss Scott Bessent and former Fed governor Kevin Warsh are also in the running. Still, we can assume Lutnick is a Trumpian when it comes to trade. Recently he said “When was America great? At the turn of the century, our economy was rocking! This was 125 years ago … We had no income tax. And all we had was tariffs.”
Trump chose Liberty Energy CEO Chris Wright for energy secretary. He’s previously said that “there is no climate crisis and we’re not in the midst of an energy transition either… There is no such thing as clean energy or dirty energy”. Suffice to say we know the White House stance on green energy! And he chose big tech critic Brendan Carr for chair of the Federal Communications Commission. He’s not a fan of big tech but he’s also not a fan of government regulation. And he is a fan of free speech.
US exceptionalism
European markets are lagging the US by a record margin, whilst the dollar is also surging. It’s a recipe for takeovers – should the US fancy anything in Europe going cheap that is. The growth premium in the US is startling for good reason – they have it, we don’t. The risk for the US is Trump fires it up too much and they overheat. The reality in Europe and Britain is that we can’t seem to buy growth at any price. Wonky energy policies are not helping. BofA says US$ (real effective exchange rate) now at 55-year high, US stocks vs world at 75-year high. Investors are highest overweight US stocks in 11 years. Stronger dollar + financial conditions tighter as markets price out rate cuts…not good for RoW. BofA says: “Wall St frontrunning Trump 2.0, so will Main St by Q4/Q1 via labor hoarding & big inventory build ahead of tariffs…means US GDP beats in Q4/Q1 best played via long US$; Wall St also pricing global bust…” The worry for the MAGA trade is rates: if we see the 30yr to 5% (currently ~4.6%), 2yr to 4.5% (currently ~4.3%)then it’s going to create the kind of tightening that produces a hard landing.
And things can turn quickly – beware linear thinking that Trump trade is one-way forever. Here is BofA again: “China to ease fiscal policy & ECB to cut rates aggressively in anticipation of “America First” tariffs…lower rates, cheaper currencies, lower oil prices means big easing of financial conditions in Asia & Europe relative to US…bear sentiment soon to approach “buy humiliation” levels.”
Stagflation?
UK inflation jumped, putting the brakes on ideas of further cuts by the Bank of England. Inflation rising, growth non-existent…it’s the nightmare stagflation situation. It’s a peculiar aspect of UK inflation that we knew it would rise because of the 10% uplift last month in the UK energy price cap. Consumer price inflation hit 2.3 per cent in October, up from 1.7 per cent in September and above analyst expectations. Core also rose to 3.3% and the belief is that inflation will continue to move up slightly – this is not a blip. Sterling jumped then sharply retraced the move – higher for longer doesn’t mean a thing if the economy is in dire straits. It suggests the Bank of England will forego a cut in December and continue to take a gradual approach to cuts. But there is another CPI reading before then.
Neil Wilson
Chief Market Analyst at Finalto
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