Tech-Heavy: It’s time for China’s EV sector to show its hand; Where would Wall St be without AI?
Link copied to
It’s a bad business this August of angst.
But as I write, stock futures in New York look stoic, ahead by a smidge with but a few days of August yet for all the major US indices to nibble away at the losses they’ve sustained since August fell upon them like Nosferatu.
The Tech-Heavy Nasdaq Composite has been drained badly, but that, my friends is life in the fast lane. It’s down almost 5.5% for the month so far.
The Dow Jones Industrial Average and the S&P 500 have been shorn of 3.4% and 4%, since that Great Shearer with the Invisible Hand began his work at the beginning of August.
But, with Asian markets up, early on Monday, Futures tied to the Nasdaq, Dow and the 500 are all ahead by as much as 0.2%, following some tough talk from Fed Chair J. Powell at Jackson Hole.
Wall Street does have some momentum, ending the final session of the week higher after J. Powell restored some order and a little confidence with his tough love approach on Friday Wyoming time.
The Nasdaq Composite found 0.9%, clearing its first week of gains by 0.8%. The first in four weeks. The S&P 500 added about 0.7% and 2.3% for the week.
The Dow added 0.7%, on Friday, but finished the week 0.45% lower.
His address at the annual central bank ho-down in Jackson Hole, caused a fair bit of post-Nvidia (NVDA) anxiety in the lead up, but he was gentle for an occasion, balancing some sticky inflation truth bombs with biscuits and tea talk around the continued US economic resilience, promising his central bank hooligans would ‘proceed carefully when the situation begged for further rate hikes.
“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in prepared remarks. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
– US Federal Reserve Chair Jerome Powell
On the whole, says Stephen Wu at CBA, the central bankers’ commentary led US shares to their Friday turnaround, with J. Powell telegraphing that monetary policy will remain tighter for longer.
“The possibility that the FOMC may need to raise interest rates further saw shorter‑dated Treasury yields lift.”
IG Markets says that following J. Powell’s address, the odds of a rate hike in September remain low at 20%.
“However, the rates market is now ~46% priced for a 25bp rate hike in November, up from ~22% three weeks ago, in line with our view in recent weeks.”
But the reality check fell – as it almost always does – to Christine Lagarde the president of the European Central Bank (ECB), who delivered another relentless critique on everything from stubborn inflation, a lack of central bank cohesion, the economic impact of tighter labour markets, the disorderly transition to green energy and the ‘fragmentation of the economy’ into competing blocs.
“There is no pre-existing playbook for the situation we are facing today — and so our task is to draw up a new one,” she said, with a steely look and an earnest, threatening voice and a breath almost certainly rich with espresso, fromage and cigarettes.
It was hard to miss Nvidia’s latest ambush on AI expectations last week. The generative AI semiconductor maker’s shares have now easily more than tripled, year to date. UBS says without AI investing the combined value of US equities would be up just 4.5% in that time, instead of a gazillion, with the megacap stocks and AI alone seemingly driving the borad based S&P 500’s 15% rise.
NVDA’s success has left behind, although some might say dragged in it’s wake the biggest and best of the Magnificent Seven. Apple (AAPL.O), Alphabet (GOOGL) and Microsoft (MSFT.O), all owe something of their rebound to NVDA flying the AI flag.
The 7’s magnificent ascent in 2023 is responsible for almost 70% of the S&P 500’s last boom month, in July.
It’ll be a good week for China’s adolescent electric vehicle (EV) industry to shine or shut up for another 3 months.
A slew of industry data drops including the monthly deliveries reports for the major China EV players emerge on Friday, while Tesla Tormentor NIO (NIO) drops its earnings on Thursday.
Chinese EV stocks have given back some bullish buying during July. One can pin that on Elon a bit.
Tesla’s (TSLA) been the instigator of several desperate and intensifying price wars in China’s domestic EV-verse. That’s probably done good by demand, but with the dark and brooding fiscal, macroeconomic, geopolitical skies all around, one wonders what’s going to come out when the margins are measured.
Geely (GELYF), Great Wall Motor (GWLLF), Volkswagen (VLKAF) and NIO (NIO) have all partaken in the firefight, but it’ll be NIO (NIO) (which will report on Thursday) that sets the tone.
For more on NIO… you’ll have to keep reading.
The week ahead stateside features a raft of indicators now coloured by the steadfast tome set by Jackson Hole.
J Powell’s preferred inflation gauge – August’s Dallas Fed index – ahead of Friday’s monthly jobs report. The results could offer more insight into the health of the consumer, the macroeconomic backdrop and the pockmarked American jobs market.
That August jobs report (on Friday September 1) is ripe with significant subtext, I read over the weekend that among a million other perplexing labor riddles, the travel and airline sector is getting kneecapped by a gaping dearth in trained air traffic controllers. In any case, Friday will be the a last chance to impress what will be upon the FOMC, before they hunker down for a decision on September 20.
The economic reports will also land as US Treasury yields continue a spectacular surge.
Meanwhile, the US earnings calendar includes key reports from Salesforce (CRM), Broadcom (AVGO), and Lululemon (LULU).
Other bits n pieces to watch include potential new regulations from the US drugs people and the likely release by the Biden Administration of the first 10 prescription drugs selected for US Medicare negotiations.
I’m a big fan of Dr Malcolm Davis over at the Australian Strategic Policy Institute (ASPI). What Just as I am an admirer of that Australian Institution, the Fin review. Imagine my joy when the two conspired this morning to discuss our Elon and his benign satellite business Starlink.
It went something like this:
“I am a fan of Musk in many respects,” Dr Davis said… but, “in a geopolitical sense, obviously, I have concerns.
“You have one person, Elon Musk, who is unpredictable in terms of his personality and his beliefs. And I think everyone just needs to look on Twitter [now known as X] to see exactly what we’re talking about.
“And he does have links with China that I think are concerning.”
It seems everyone’s upset about Elon’s space-based, side-stepping Starlink’s toehold across the roundly inept $33 billion teleco sector, where Optus and Telstra don’t bother competing to under-do each other… “giving rise to some concern among experts about what Musk could do with it,” says The Fin.
He might make it work. I’d love to have good internet.
Elsewhere in Elon’s life, the upstart Republican presidential candidate Vivek Ramaswamy has told US media he wants Elon to be his adviser, in the unlikely (though not impossible) event that Trump is hit by a piece of falling Starlink equipment, or is actually convicted of something that stops him from resuming the presidency.
Ramaswamy, himself a (minor) billionaire biotech business bad boy, was kicking it in Iowa on Friday when some damn fool asked about about candidates for the West Wing should he land the White House.
“I’ve enjoyed getting to know better, Elon Musk recently, I expect him to be an interesting adviser of mine because he laid off 75% of the employees at Twitter,” vis a vis NBC.
“And then the effectiveness actually went up.”
Monday – Nordic American Tankers (NAT) and Baozun (BZUN).
Tuesday – Best Buy (BBY), HP (HPQ), NIO (NIO)
Wednesday – Salesforce (CRM), CrowdStrike (CRWD), Five Below (FIVE).
Thursday – Campbell Soup (CPB), Broadcom (AVGO), UBS Group (UBS), Dell Technologies (DELL), Lululemon (LULU).
Wall Street reckons Nio will deliver a loss of 41 cents EPS on revenue of US$1.27 billion. For the same period last year it reported an EPS loss of 24 cents on revenue of US$1.48 billion.
As mentioned above, in response to TSLA’s pricing cuts, Nio has tried to go toe-to-toe with Elon and that’s not great for anyone’s margins.
That’ll likely squeeze the Street’s EPS expectations. NIO’s stock has slid fast during angsty-August too, down about 9% vs the S7P500 which is short just 3%.
But NIO’s stomping ground is China, the second fastest-growing EV market worldwide and the company enjys some solid state-backing. So while a top or bottom line beat would be welcome, the sector’s too important for Xi Jinping and the Politburo not to to take in hand, should the need arise.
United Kingdom, Philippines Market Holiday
Japan Leading Economic Index (Jun, final)
Japan Unemployment Rate (Jul)
Germany GfK Consumer Confidence (Sep)
United States S&P/Case-Shiller Home Prices (Jun)
United States House Price Index (Jun)
United States JOLTs Job Openings (Jul)
United States CB Consumer Confidence (Aug)
Japan Consumer Confidence (Aug)
United Kingdom Mortgage Lending and Approvals (Jul)
Eurozone Economic Sentiment (Aug)
Eurozone Consumer Confidence (Aug, final)
Germany Inflation Rate (Aug, prelim)
United States ADP Employment Change (Aug)
United States Goods Trade Balance (Jul, adv)
United States Wholesale Inventories (Jul, adv)
United States Q2 GDP (2nd est.)
United States Pending Home Sales (Jul)
Malaysia Market Holiday
South Korea Industrial Production (Jul)
Japan Industrial Production (Jul, prelim)
Japan Retail Sales (Jul)
China (Mainland) NBS PMI (Aug)
Thailand Industrial Production (Jul)
Japan Housing Starts (Jul)
Germany Retail Sales (Jul)
France Inflation and Q2 GDP
Germany Unemployment (Aug)
Eurozone Inflation (Aug, flash)
India GDP (Q2)
United States Core PCE (Jul)
United States Personal Income and Spending (Jul)
Worldwide Manufacturing PMIs, incl. global PMI (Aug)
Canada GDP (Q2)
United States Non-farm Payrolls, Average Earnings,
Unemployment Rate (Aug)
United States ISM Manufacturing PMI (Aug)