Geopolitical tensions, and Nvidia results, but a surprising lack of volatility. The TPP midweek update.

It’s been a busy week as geopolitical tensions mount and the world’s largest company reports

European and US stocks have fallen amid geopolitical concerns and a lacklustre revenue forecast from Nvidia Corp. that damped appetite for tech shares.

Russia has fired an intercontinental ballistic missile for the first time since its full-scale invasion of Ukraine in 2022, following days of escalation in the conflict. Ukrainian air defence forces said the missile, which did not carry a nuclear warhead, was fired alongside seven Kh-101 cruise missiles at the southern city of Dnipro.

The use of the ICBM comes after Ukraine launched US-made long-range Atacms missiles and British Storm Shadows at Russian territory in recent days. Responding to the Atacms strikes, Russia altered its nuclear doctrine to lower its threshold for first use.

ICBMs are designed to carry nuclear warheads across continents, by contrast with so-called short- and medium-range missiles. Their range of thousands of miles is far greater than that of missiles such as Atacms and Storm Shadows, which can travel 250km to 300km. Russia has previously used nuclear-capable missiles to hit Ukraine, albeit with shorter ranges. Russian forces have repeatedly fired ground-launched Iskander short-range ballistic missiles and the air-launched hypersonic Kinzhal missile, both of which are capable of carrying nuclear warheads.

Stocks have been jittery as tensions escalate and it’s easy to see why.

Nvidia

On Wednesday night the largest company in the world announced its corporate earnings. Nvidia Corp. assured investors that its new product lineup can maintain the company’s AI-fuelled growth run, though the rush to get the chips out the door is proving more costly than expected.

Speaking after the release of quarterly results, Chief Executive Officer Jensen Huang said that Nvidia’s highly anticipated Blackwell products will ship this quarter amid “very strong” demand. However, the production and engineering costs of the chips will weigh on profit margins, and Nvidia’s sales forecast for the current period didn’t match some of Wall Street’s more optimistic projections.

That brought a tepid reaction from investors, who had bid up Nvidia shares almost 200% this year heading into the earnings report. After that dizzying rally, which turned the chipmaker into the world’s most valuable company, anything but a blowout quarter was bound to be a disappointment. The shares fell about 2% in late trading.

UK Data

Earlier in the week we saw that UK inflation accelerated more than forecast in October to well above the Bank of England’s 2% target, a pickup that investors saw as further dimming the prospect of more interest-rate cuts in the coming months.

Consumer price inflation rose to 2.3% from 1.7% in September after a jump in energy bills, the Office for National Statistics said on Wednesday. It was above the 2.2% forecast by the BOE and private-sector economists.

Services inflation, which is being monitored closely by rate-setters for signs of domestic pressures, remained elevated at 5%, in line with BOE forecasts and up from 4.9% in September.

The figures are likely to entrench a cautious approach at the UK central bank to reversing 14 back-to-back interest-rate hikes amid growing inflationary threats at home and abroad. It is the first sign of a predicted pickup in inflation over the coming year.

Higher Energy Prices Pushed Inflation Above the BOE's Target

Contributions to the change in the annual CPI inflation rate between September and October 2024.

The inflation release caused traders to further scale back their bets on lower interest rates in the coming months. The market now expects just two more quarter-point decreases in 2025, with a 40% chance of a third. Earlier this month, three reductions were fully priced.

More bad news came as the Office for National Statistics showed the government borrowed more than expected in October as spending and debt repayments outstripped tax receipts.

Government borrowing surged to ￡17.4bn, up ￡1.6bn year-on-year, in the first figures published since Finance Minister Rachel Reeves’s Budget last month. Economists had been expecting around ￡12.3bn.

It is also the second highest October borrowing since monthly records started in 1993.

"Despite the cut in the main rates of National Insurance earlier in 2024, total receipts rose on last year. However, with spending on public services, benefits and debt interest costs all up on last year, expenditure rose faster than revenue overall," said Jessica Barnaby, deputy director for public sector finances at the ONS.

Commodities

Oil held steady as traders weighed the recent escalation of Russia’s war in Ukraine against rising crude stockpiles in the US.

West Texas Intermediate traded little changed near $69 a barrel. Crude had gained earlier after Ukraine’s armed forces fired British cruise missiles at military targets inside Russia for the first time, while the Kremlin stepped up its threat of a nuclear response. Oil later weakened after the Energy Information Administration said US crude stockpiles rose 545,000 barrels last week while gasoline inventories swelled 2.05 million barrels.

“The Ukraine war has roared back into importance for investment markets,” said John Evans, an analyst at PVM Oil Associates. “The oil market will once again enter into another bout of geopolitical versus supply push and pull.”

Oil prices have been buffeted by mixed signals on the two conflicts currently roiling world markets, and the prospect of a supply surplus next year. Still, implied volatility for Brent has trended lower since the middle of last month.

In the Middle East, the US has stepped up efforts to reach a cease-fire between Lebanese militant group Hezbollah and Israel before Joe Biden’s term as president ends, and Iran has agreed to stop producing uranium enriched to near bomb-grade.

The International Energy Agency has warned that global oil markets face a sizeable surplus next year, even if the OPEC+ alliance doesn’t bring back curtailed production, amid faltering demand growth in China.

CBOT wheat futures extended their upward rally with a weekly advance of over 4%. This followed the rising tension between Russia and Ukraine and renewed threats of supply disruptions.

Weekly data from the European Commission shows that EU soft-wheat exports for the 2024/25 season dropped to 8.8mt as of 17 November, down 31% YoY. Rising competition from Russia and a poor harvest in France has weighed on export volumes. Meanwhile, ?EU corn imports stand at 7.6mt, up 11% YoY and are due to weaker domestic supply this season.

There is a lot going on in the world at the moment and not a lot of it is good. Hopefully, the developments are the beginning of the end, but that’s a forecast nobody would be prepared to stand behind just yet.

On our platform:

After a solid last few months, it's all to play for in November coming into the final stretch.

Our trackers are tracking and looking to add long term value, and many of our 'Long or Flat' strategies bought into the retracement in European equities last week. Right now, they're still in those positions waiting for the markets to push forward. One of them did liquidate their position as the geopolitical tensions increased, but being cautious is never a bad thing.

Meanwhile, on our active strategies we have a small SELL?position in US tech but in the main: A BUY?BIAS. There are multiple BUY positions on The FTSE, CAC, DAX, RUSS 2000, and The DOW.

In theory, the ideal scenario for our platform as a whole right now would be for global equities to increase in value, but with US?tech performing slightly worse.

It's been a quiet one so far on TPP this week, but we'd much rather wait for the right opportunity to add a trade, or change our overall biases.

Forcing positions is never a good trait of a trading approach, and the patient trader is often a profitable trader.

If you're a client, and wondering whether your portfolio has the right level of diversification across our 3 trading styles, reach out to our team. If you're a frustrated investor who is looking for a little more from their portfolio, then please don't hesitate to reach out and find out more.

At TPP we employ 3 techniques for our clients to attempt to build benchmark beating portfolios.

We won't be right every month or quarter, but providing you spread your exposure across our different investment approaches, we're quite certain that over the longer term we can assist you to consistently beat your benchmark.

Enjoy the rest of your week.