Markets
One stock to rule them all. Q3 Nvidia earnings are key after market closure tonight. Option markets imply traders are expecting the company’s share price, which has the biggest weighing in the S&P 500, to move by an average of 6.4% in either direction when markets open on Thursday. The earnings report coincides with key European and US equity markets testing first support levels (October lows). Losing those would morph a correction (amongst others over lofty AI valuations) into a more pronounced setback. In the run-up to the release, the EuroStoxx50 in any case avoided a move below 5488. It currently trades 0.33% higher on the day, overcoming 0.50% opening losses. A Politico report suggesting that the White House is on the brink of unveiling a major new peace agreement with Russia that officials say will bring war with Ukraine to an end helps lift spirits with the exception of the defense sector. US stock markets open up to 0.5% higher for Nasdaq. Apart from the Nvidia result, FOMC Minutes of the October policy meeting are also on tap during US hours. They’ll be testament to the highly divided comments from Fed governors which erupted since the second risk management rate cut since restarting the policy normalization cycle lower. They are unlikely to settle or even navigate the debate on the outcome of the December Fed meeting (currently 50/50 split). Thursday’s September payrolls, even though outdated, might in this respect have more market moving potential being the first big government release since the shutdown ended. It was today also announced that US September retail sales will be released November 25.
The Japanese yen is suffering on FX markets. Not only because the new PM’s office is preparing an additional budget rumoured to be double (JPY 25tn) its original and last year’s size, but now also with risk sentiment no longer working as offsetting factor. USD/JPY rallies to its highest level since January today (156.5 from 155.50) with spillover to other USD-crosses. EUR/USD for example slips from the 1.16 handle towards 1.15500. EUR/JPY hits a new all-time high at 181. Sterling is unmoved by this morning’s October CPI numbers which adds to the disinflation thesis. After peaking at 3.8% Y/Y in September, inflation slowed to 3.6% mainly because of energy prices. While it cements a December 25 bps BoE rate cut, sterling has bigger issues on its mind in the form of next week’s Budget.
News & Views
A new proposal by the European Commission aims to reduce digital regulation, considered as over-reaching, poorly defined, complicated and at times even contradictory. Some of the EU’s AI Act are already in effect from August this year with requirements for so-called high-risk AI systems (such as self-driving vehicles) coming into force in the summer of next year. The EC now proposes to push that date forward for as much as 16 months and additionally calls for streamlining the process to report cybersecurity incidents and easing data protection regulations to facilitate the training of AI models. The Commission’s plan builds on suggestions made by former ECB president Draghi in his 2024 report on (waning) European competitiveness.
Delayed August US trade data showed the deficit declining by around a quarter from -$78.2bn to -$59.6bn. The steep drop coincided with a series of import levies that came into effect at the start of that month. Import value fell by 5.1% m/m, one of the largest monthly drops since at least the early nineties. The record -16.2% monthly decline came on the back of US president Trump’s Rose Garden tariff announcement while the other big drops only occurred during crises (2008, 2020). The import reduction was led by nonmonetary gold, a reflection of a big increase in tariffs on Switzerland to 39%, which in the meantime was negotiated down to 15%. Imports of computer accessories and communications equipment also fell. Exports rose a meagre 0.1% m/m.
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