US-China trade truce is due to expire tomorrow – markets susceptible to headline risk as the base case is for this to be extended. Stock markets were muted early Monday with the FTSE 100 up 0.25% and DAX flat, while US futures traded a little firmer.
Nvidia and AMD are to hand over 15% of some China revenues to the US government.
The unusual deal is in return for export licenses for Nvidia’s H20 and AMD’s MI308 chips, as reported by the Financial Times.
I’m not sure this amounts to much in the grand scheme for the shares, but it’s an odd one and just shows everyone is dancing to Trump’s tune.
U.S. President Trump and Russian President Putin will meet in Alaska on 15 August to discuss the Ukraine conflict. Gold prices fell – maybe losing some geopolitical risk premia?
Comex futures in New York shedding more than the spot price as the White House said it would issue an executive order clarifying its stance on tariffing gold bars.
This week we get a batch of important US data – CPI and PPI inflation as well as retail sales numbers and industrial production figures. CPI is the big one for the Fed – core inflation is expected to rise 0.3% month-on-month in July, with market participants closely watching Fed policy implications. Core inflation picked up 0.2% last month, with the annual rate moving to 2.9%.
The headline rate was 2.7% having risen from 2.4% since April and is expected to hit 2.8%. The closer it gets to 3% the harder it is for the Fed. The Cleveland Fed’s Inflation Nowcasting model CPI at 3% in July and August, too hot for the Fed to ease as the markets price.
In the UK we have some key employment data tomorrow – I say key because 4 members of the MPC last week voted to hold rates despite signs of serious softness in the labour market. Unemployment rose to 4.7% last month, a four-year high amid a cratering in payrolls. Since last October’s Budget unemployment has risen from 4.3% to 4.7%. Sterling will have to wake up to the incredibly weak structural backdrop in the UK.
The S&P 500 nearly made a new all-time high, the Nasdaq did. The Mag 7 are still the hot shots because their earnings are superior. Earnings growth among US tech stocks has been really strong – this earnings season is coming to a close on a really powerful set of numbers for tech, obviously driven in large part by AI investments and this huge capex rush.
Concentration risk has resurfaced because really no one has a better idea of where to put their capital to work but it’s clear why – FactSet pointing out that the Mag 7 delivered 25.7% YoY earnings growth in Q2 vs 6.3% across the rest of the S&P 500 (the Lag 493). Materials stocks earnings are down 5%. I think investors felt there were plenty of bargains in April and the narrative shift towards Europe has drifted because earnings in Europe are not really keeping pace, plus you have these 15% tariffs on European exports, which is a big handicap
Another point is on the dollar, which has weakened a lot this year – this not only helps US exports to boost earnings in USD, but it also flatters the index on a relative basis to the UK/Europe. The FX effect should not be underestimated – S&P 500 is up about 8% YTD in USD but flat in Sterling terms … so a lot of people here are long US tech but not up for the year.
