Chinese envoy: An immediate cease-fire in Gaza is imperative

New Zealand retail sales for Q4 -1.9% versus -0.2% expected

What is ahead in the Asian Pacific session? New Zealand retail sales. Fed speak.

As we head into the Asia-Pacific market, what is ahead for economic releases and events:

  • Japan is on holiday
  • At 4:45 PM ET, New Zealand retail sales for Q4 will be released with estimates of -0.2% versus 0.0% last quarter. The core retail sales are expected to also declined by -0.1% versus 1.0%. This week, the Reserve Bank of New Zealand will announce their interest-rate decision next Wednesday (in New Zealand). There was some calling for a rise, but the following inflation expectations announced last week have eased some of that thought. Nevertheless, RBNZs Orr still feels that the central bank has “more work to do” in their quest to get inflation back in the 1-3% target area. CPI inflation for Q4 came in at 0.5% which was as expected but well below the 1.8% from Q3.
  • FOMC member Cook is scheduled to speak at 5 PM ET.
  • At 7:01 PM ET the UK GfK consumer confidence will be released with the expectations of -18 vs -19 last month.
  • FOMC member Waller is also scheduled to speak. He will speak at 7:35 PM ET about the economic outlook
  • China House prices YoY for January will be released at 8:30 PM ET. Last month they came in at -0.45% (no estimate)

Coming into the week’s end, the major indices are mostly higher:

  • Japan’s Nikkei will be closed, but closed the week up 1.59%
  • Shanghai composite index is up 4.27%
  • Hong Kong’s Hang Seng index is up 2.47%
  • Australia S&P/ASX index is down -0.6%

The US stock market was goosed sharply higher on the back of the surge in AI stocks and should provide a tailwind for stock markets.. The S&P index closed at a record level. The NASDAQ index tested the high closing level at 16057.44, but backed off a bit into the close. It still rose by 2.96% on the day. The Dow Industrial Average closed at a record level as well.

In the US debt market, yields were mixed in the US with the short end higher and the longer end modestly lower:

  • 2-year yield 4.715%, +6.3 basis points
  • 5-year yield 4.342%, +4.3 basis points
  • 10-year yield 4.338%, +1.6 basis points
  • 30-year yield 4.474%, -1.7 basis points

Crude oil was higher in the day by $0.62 or 0.80% at $78.53. Gold was down marginally by $2.56 or -0.13% at $2023.36. Bitcoin was near unchanged at $51,778 as the flow of funds moved into stocks.

IN the forex market in the US session, the major indices are relatively close together. The NZD is ending the day as the strongest of the major currencies (although it had it’s ups and downs), while the JPY is the weakest. The USD is ending modestly lower but mixed.

In FedspeaK in the US session:

  • Fed Governor (and voting member) Philip Jefferson provided insights into the current economic and inflation outlook, expressing a cautious stance on the future of monetary policy. He noted the possibility of beginning to cut the policy rate later this year, underscoring the bumpy path down for inflation as highlighted by the disappointing Consumer Price Index (CPI) data for January.Jefferson pointed out three key risks to the economic outlook: resilient consumer spending that could halt progress on inflation, potential weakening in employment, and ongoing geopolitical risks. Despite these challenges, he remains cautiously optimistic about making progress on inflation, emphasizing the importance of reviewing a comprehensive set of data to assess the economic outlook and to guide future monetary policy decisions.
  • Meanwhile, Fed’s Harker expressed cautious optimism about the U.S. economic outlook, acknowledging the possibility that the Federal Reserve might be approaching a point where it could consider cutting rates, though the timing remains uncertain. Recent CPI data indicated progress towards inflation control, albeit unevenly. Harker highlighted the risk of the Fed cutting rates too prematurely, amidst concerns over increasing credit delinquencies. However, he noted several indicators suggesting that the labor market is achieving better balance, and remarked on the continued strength of the U.S. GDP. Harker emphasized the need for further assurance that inflation is steadily returning to the Fed’s 2% target, suggesting that the Fed is close but not quite there yet in achieving its inflation goal. He also mentioned that the recent uptick in layoffs should not be interpreted as a precursor to a recession, reinforcing a generally positive but cautious economic outlook.

Forexlive Americas FX news wrap: The forex market unsure what to do with huge equity gains

US equity close: Nvidia scores the biggest market cap gain ever

All eyes were on Nvidia today and it certainly delivered, climbing $108 or 16%. In market cap terms, that’s a gain of $277 billion, which is the single-best day for any stock ever by a margin of more than $70 billion.

The gains in Nvidia led to a renewed wave of global enthusiasm about generative AI and equity markets in general.

On the day:

  • S&P 500 +2.1%
  • Nasdaq Comp +3.0%
  • DJIA +1.2%
  • Russell 2000 +1.0%
  • Toronto TSX Comp +0.7%

It was an impressive day for equities and eyes are on BKNG after hours as it reports earnings that could offer some insight on the health of the US consumer.

The Nasdaq is now within striking distance of the November 2021 record high.

Nasdaq daily

Bitcoin isn’t ready to follow the Nasdaq’s lead

Bitcoin has suddenly gone quiet.

It’s up 1% after falling 1% yesterday but zoom out and it’s been flat since February 15.

Bitcoin daily

Now what stands out on that chart isn’t a week of flat trading but the big run-up since February 6. A period of consolidation is normal following a big move but it’s a particularly narrow range.

I look back at the period in late-January/early-Feb as similar. It took 11 days to break that range but when it did, the result was a $10,000 one-way move. I would expect something similar when this range finally breaks.

For the bulls, I would say it’s a moderate concern bitcoin could ride on the big rally in the Nasdaq today. There has been a high correlation between BTC and NQ but it may only take a nudge to send it soaring.

Why hot economic data isn’t a problem

In the macro picture, the main bearish argument is that the US economy could continue to strength and re-ignite inflation, leading to a long Fed pause at the top or even another hike.

Fuelling that sentiment is the experience of 2022, where US equities — particularly tech — were beaten up on inflation fears. It’s easy to forget that shares of META fell 80% in that period.

Those declines have since been reversed but the episode has left a lasting impression on the macro landscape. I think that’s a mistake. A better episode to focus on is the past two months. The market went from pricing in 160 basis points in Fed cuts to just 81 bps today. Despite that, the Nasdaq has rallied nearly non-stop.

There is a Fed put in play that I believe can fuel risk appetite despite strong US economic data. The way I see it, if the US economy grows 3% this year, the Fed won’t cut. If it grows 1.5%, the Fed could cut 4-6 times.

Either one is a winning scenario: It’s a classic Fed put. That’s a dynamic I’ve been highlighting since October and my conviction is growing that it will lead to sustained strength in equities.

Where it will leave a dent is in FX.

There is a clear divergence shaping up between the US and every other advanced economy. Thirty-year fixed mortgages rates have immunized the US consumer against higher rates and extreme government spending is fuelling excess growth. Meanwhile the rest of the world is feeling the pain of higher rates and many places don’t have the financial capacity of the US.

Not only will the rate divergence with the US and the rest of the world open up in H2 of this year, I think it will expand. Now that depends on how well US economic data holds up but as it stands, the US outlook is better than almost anywhere else.

Don’t stop believin’: Nasdaq up nearly 3%

There’s an alternate universe where Nvidia reported some kind of production stumble or the guidance wasn’t strong enough or Jensen Huang was sick and this market fell apart.

But in this reality, it’s full-steam ahead on the artificial intelligence express. The Nasdaq is sizzling today, up nearly 3% to a fresh record high as NVDA adds $100 to $775 in the largest single market cap gain in history. The S&P 500 is up 100 points or 2%.

As for the Nasdaq, it’s now just below the early-February high and not far from the November 2021 record of 16,212.

Nasdaq monthly

The Fear and Greed index is into extreme greed territory and there are plenty of nay-sayers but it’s really tough to fade this rally. This is a market that seems to want to create a bubble. NVDA is only trading at something like 30x earnings while companies — especially the leaders — got to 50-60x in 1999. There are always holes you can poke in the story but the whole world wants to be invested in US tech at the moment; there’s no sense fighting it.

The Nikkei is proof that timing is everything

Nikkei 225 monthly

It’s a shame that Nvidia earnings are overshadowing what happened in Japan today. The Nikkei 225 hit an all-time high, finally break the 1989 peak after an incredible 34-year wait.

Given that it’s come on the same day as Nvidia is likely to make the single-largest market cap gain in history, note the parallels. Throughout the 1990s, Japan was an unstoppable force and money poured into the Nikkei and Japanese real estate.

It was a one-way trade from 7000 in 1983 to 39,000 in 1989 — a 457% increase. Then the bubble burst with a drop as low as 19,000 by late 1990, a 51% drop. There were bounced along the way but the index worked its way down to 7000 in 2009 and barely gained through 2013.

However over the last 10 years, the index has been a solid gainer, climbing 400% in a repeat of the 1980s move. Now both of these moves are something of an illusion for foreign investors. In the 1980s the yen strengthened dramatically to 121 from 260 while in the past decade, the value of the yen has been nearly cut in half.

The message from all of this is that timing is everything and chasing a hot market can have very real consequences. The question that NVDA bulls should be asking is whether this is Japan in 1985 or Japan in 1989. Personally, I don’t think we’re at the point of the insanity of 1989 valuations in Japan but we could very well get there given the enthusiasm for generative AI.

The problem for Nvidia is that they’re not the only company that can design chips. They’re now a $2 trillion company and that puts a big target on their back for anyone who can design the next wave of GPUs. So while it’s clear enough they will be making mountains of money through 2026, those 75% margins are unlikely to last until the end of the decade.

USD/JPY stretches to the highs of the week as Fed rate cut pricing dwindles

USD/JPY is at the highs of the week, up 37 pips today to 150.65.

USDJPY daily

Eyes are on 150.88, which was the Feb 12 high. A break through that puts 152.00 squarely on the table and a challenge of the November 2022 and October 2021 double top.

This pair is getting it from both sides. Fed cut pricing for this year is down to just 80 bps from upwards of 160 bps earlier this year. Consistently strong economic data has the market thinking the Fed will remain patient before lowering rates.

On the JPY side, a suddenly struggling economy has some questioning whether the Bank of Japan will hike at all, or if any hike will be a one-off rather than the beginning of a cycle.

Today’s economic data was a mixed picture with US initial jobless claims lower than anticipated but the S&P Global services PMI on the light side. Going forward, the market will closely track upcoming US eocnomic data releases. It’s been quiet this week but next week features durable goods orders and the PCE report.