February 22, 2024

“The FX markets have kicked into high gear this morning with some sharp moves higher in sterling and the euro, which will be tested by the PMIs throughout the day. A busy afternoon also sees retail sales data in Canada and jobless claims in the US.”

Sam Cornford – Head of Trading

Main Headlines

On Wednesday, Nvidia’s shares surged by another 10% in post-close trading as it projected a significant threefold increase in quarterly revenue, surpassing estimates and indicating robust demand for its leading artificial intelligence chips. The surge in demand for Nvidia’s chips remains strong as companies rush to enhance their AI capabilities, with customers including Microsoft.

On Wednesday, President Joe Biden announced the cancellation of $1.2 billion in student loans for nearly 153,000 eligible individuals, fulfilling promises to expand loan forgiveness initiatives. The move, aimed at addressing the concerns of left-leaning progressive and young voters, aligns with Biden’s re-election goals, despite opposition from Republicans who generally oppose widespread student loan forgiveness.

GBP

Sterling has surged 0.5% against the dollar to a near three-week high this morning, tracking a spike in UK gilt yields with no obvious trigger. A speech by Swati Dhingra had a muted impact on markets yesterday, but caused a stir with her argument that the focus on lagging wage growth and services inflation indicators embed an overtightening bias into policy, along with warnings that the UK economy would receive undue damage if the BoE pushes back rate cuts. The focus is on the purchasing manager business surveys this morning – the most recent forecast points to a repeat of last month’s strong expansionary figure, something that will likely validate the central bank’s higher-for-longer messaging.

EUR

Although dented by another downturn in German manufacturing activity, soaring eurozone yields and positive French data have propelled the euro this morning to its highest level since the stellar US payrolls print early this month. The consolidated figure for the euro area is expected to lift again from its October lows this morning. While still in contractionary territory, the data signalling a rebound in eurozone growth activity has been slowly accumulating over the past several months. At the very least, this should mean that the ECB’s hand is not forced into early rate cuts. It may just give the ECB a bit of headroom to hold off easing policy until the April wage data, although it is debatable how consequential this data will truly be. The ECB policy meeting accounts come this afternoon but are unlikely to throw up any surprises that move the dial for rate cuts to any significant degree, given how active policymakers have been in front of the podium recently.

USD

The dollar index has dipped to a near three-week low on a contracting yield advantage with its European neighbours. The FOMC meeting minutes dragged global yields higher across the board yesterday but failed to generate any independent strength for the greenback, after Fed officials emphasised the uncertainty over how long rates must be held at current levels. Policymakers were acutely concerned again by the risks posed by cutting too soon and the possibility that the disinflation path hits bumps, something that has undoubtedly been validated by the hot payrolls, PMIs and CPI data that have rolled out since the meeting. The PMIs are likely to bolster the US economic exceptionalism story this afternoon, with the manufacturing and services indexes both expected to print above the critical 50.0 mark again. Jobless claims and home sales data will also give a quick insight into the labour market and the housing sector.

Markets

Nvidia revenues urged 265% in the fourth quarter from the year before as the chipmaker proclaimed an AI ‘tipping point’, dragging the S&P 500 back above 5,000 and pulling Japan’s Nikkei 225 up to an all-time high last reached in 1989. Meanwhile, the slow drip of policy moves in China seems to finally be giving some support to Asian stocks, with the Shanghai Composite one day short of its best run in three and a half years, after only recently sitting at a five-year low.

Main Economic Events (All Times CET)

10:00am: Eurozone Flash PMIs
10:30am: UK Flash PMIs
1:30pm: ECB Monetary Policy Meeting Accounts
2:30pm: Canadian Retail Sales
2:30pm: US Unemployment Claims
3:45pm: US Flash PMIs
4:00pm: US Existing Home Sales

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