Rate Cuts & Chips Chat

A very good morning to market participants as we look toward the European cash open. At time of writing, S&P Futures +0.14%, Dow Futures: +0.0028%, Nasdaq Futures: +0.2652%. A clear lead-lag relationship in-play as dip-buying on tech names spur mild rebound on Wall Street. Fund managers see moving flows back into growth from defensives.?

On rate cuts: Latest content out of MacroHive’s Dominique Dwor-Frecaut cautions that the market may be wrong to expect a steep dovish turn from the US Fed as soon as Q1 next year. She expects one more hike in November & no rate cut until inflation is in tandem with the SCP. One of the reasons is the rate at which wage growth data is coming in (currently at 5%), making the notion from Fed’s Williams that inflation might drop below 3% this year seems unlikely. Dominique’s take is that FOMC members would probably be looking at real inflation figures to drop to 3.9% this year and 2.6% next year (inching closer to the Fed’s 2.0% target) before making any concrete moves regarding rate cuts. According to the SCP, however, has allocated in 5 cuts by the end of next year with none by the end of this year.

In today’s ‘Wall Street Breakfast’: Goldman pencils in their first rate cut as early as Q2 2024 as they expect US Core PCE to drop to ‘Fed-Approved' levels warranting a rate cut. Morgan Stanley finds NVIDIA prices to be attractive as we look to retest June-July resistance at $437.81, which turned to support at the end of July and early August this year. $400 does seem to be the baseline for longs here as we’ve seen buying commence at that level on June 13th, June 16th and August 14th. ?Do note Nvidia is only set to release earnings on August 24th underpinning an undersupplied market.

On Chips: In my opinion, NVIDIA, AMD, TSMC & Marvell Tech are all darling buys in the face of AI boom despite the cloud market share growth not to be exponential in correlation of expenditure but with security concerns remaining as one of the core concerns when it comes to AI, data centers will undoubtedly need to be built.

A good example is Tesla and its self-driving software. We are talking about massive projects involving infrastructure systems & network distribution to generate the necessary backbone for its neural network. When it comes to privacy concerns, regulations such as the GDPR impose heavy penalties when it comes to data protection laws.

So, building data centers works out on multiple fronts for behemoths like Amazon AWS, Microsoft Azure etc.

Economic Data: This week, investors will be on the look out for FOMC minutes release this Thursday for further insight into the US Federal Reserve’s outlook for the remainder of the year along following Retail Sales figures today & Building Permits + Industrial Production data on Wednesday.

A big week for Cable as the UK is set to release a swath of data this week. Unemployment Rate came in at 4.2% versus expected consensus at 4%. Tomorrow, we look towards UK Inflation Rate with the consensus headline YoY figure expected to drop to 6.8% from prior 7.9%. On Friday, all eyes will be on Retail Sales numbers with headline MoM figure to come in -0.5% versus the prior 0.7%.

For Euro traders, the German ZEW Economic Sentiment Index due today, is expected to stay the course at -14.7 and Current Conditions to come in at -63 versus prior -59.5. Pre the US Cash Open we have Canadian Inflation Rate set to be released for Loonie traders (consensus YoY expectations at 3% versus prior 2.8%).

That is it from me today. For more in-depth outlook and analysis – sign up as a client by opening a Live account below. Please do not hesitate to get in touch if you have any questions. This was – Your Morning Reed.?

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