Markets in a minute 26th February 2024

Last week, the S&P 500 rose by 1.7% (MTD 5.1%, YTD 6.9%), while the Euro Stoxx 50 rallied by 2.2% (MTD 5%, YTD 8.1%). Global stock markets rose to new historical highs, aided by optimism around AI after Nvidia announced blockbuster Q4 earnings. Of note, Japan reached a new all-time high for the first time since 1989! More details in our Market Explainer in the link below.

Nvidia's Q4 earnings were a key market focus and the company posted another blockbuster set of figures. Revenue rose by 265% in Q4 to $22.1bn compared to market expectations of $20.4bn. CEO Jensen Huang stated: “Accelerated computing and generative AI have hit the tipping point....Demand is surging worldwide across companies, industries and nations.” Nvidia is now the third largest US company by market cap, moving above Amazon and Google and only behind Apple and Microsoft.

Global PMIs for February were broadly suggestive of a recovery in manufacturing output, with rises in the US and the UK indicative of expansionary conditions. The Eurozone was mixed, with a fall in Germany and increases in the rest of the region. The composite PMI rose by more than expected in the Eurozone and while it remained in contractionary territory (below 50) there were strong improvements in the employment and new orders subcomponents.

The Fed's January meeting minutes reflected a somewhat cautious tone among the monetary policy committee, with most members concerned about moving “too quickly to ease the stance of policy”. This suggested that rate cuts may come later in 2024 than previously expected.

The ECB's January meeting minutes were also hawkish, with the Governing Council expressing the need to "stay the course" and not to cut too early as this "could entail high reputational costs". Governing Council Member Holzmann, who is considered a hawkish member, suggested in an interview that it was unlikely the ECB would cut before the Fed: “I don’t see circumstances which bring us to cut before.”

Hawkish central bank commentary pushed up short-term bond yields (bond prices fall as bond yields rise) last week. The yields on the US Treasury two-year note and the equivalent German bund reached year-to-date highs last week, with both rising by 4bps to 4.69% and 2.85%, respectively.

This week, there are a few datapoints for the market to focus on, particularly in relation to inflation amid more hawkish central banks. The key ones are likely to be US January durable goods orders (tomorrow) and February inflation data (Thursday), as well as Eurozone February consumer prices.