By Michael BrownSenior Research Strategist at Pepperstone
DIGEST – Sentiment was softer yesterday as participants continued to pay close attention to incoming geopolitical news flow, and as the tech sector faced headwinds once more. Today, a light docket awaits to conclude the week.
WHERE WE STAND – Well, I guess it was a case of ‘commentator’s curse’ on my part yesterday.
Having, on Thursday morning, noted that Nvidia’s earnings seemed to be a positive enough catalyst to put a floor under risk assets, and restore confidence in the tech/AI story, the price action yesterday suggests I was wide of the mark! Tech stocks dived on Wall Street, with the Nasdaq taking a beating, and with Nvidia stock itself falling as much as 5% on the day.
I would flag, here, that those declines not only see NVDA remain well within the range that we’ve traded in since last summer, but also that the move simply took the NQ back to where we were on Wednesday – hardly ‘end of days’ type stuff! Still, the lack of follow-through on the post-earnings upside will probably concern those who look at proceedings through a short-term lens, even in an environment where the longer-run fundamental bull case remains a robust one, in my mind.
Further denting risk appetite were geopolitical developments, as the latest round of US-Iran talks in Geneva acted as a catalyst to trim down risk across the board. While there was plenty of headline noise surrounding those talks, the nub of the matter is that, at least per Omani mediators, ‘significant progress’ was made, with a further round of technical-level talks set to take place next week. Clearly, we can’t completely rule out the prospect of imminent military action, but the chances of that do at least seem to have been reduced.
Given the noise on that front, it was perhaps unsurprising to see crude benchmarks go on a bit of a rollercoaster ride throughout the day, only to end up basically unchanged compared to where proceedings begun. Here, I’d reiterate that geopolitically-driven rallies in crude typically don’t prove to be especially durable, though would also flag that I’d have absolutely no desire whatsoever to be short crude over the weekend, given how febrile the situation remains.
As for markets elsewhere, it wasn’t only the equity complex where risk aversion made itself known. Treasuries saw gains across the curve, with the benchmark 10-year yield briefly falling as low as 4.01%, printing its lowest level since late-November last year. That said, we do remain, just about, within the longer-run range here, so I’ll repeat that I’d like someone to wake me up if, or when, we trade under 4.00% on a closing basis, as that would give UST bulls some degree of control in the near-term.
Interestingly, though, we didn’t see much by way of haven demand in the metals complex, with gold holding beneath the $5,200/oz handle once again, nor in the FX space, where conditions proved very moribund indeed. Though I continue to lean in favour of renewed losses at the long-end of the UST curve, I have very little faith in the idea that FX vol will materially pick-up any time soon. Selling strangles is still probably the best idea on that front, especially in the G10 space.
LOOK AHEAD – A pretty light docket ahead, with little on it that’s likely to be overly market-moving.
From the US, this afternoon bring January’s PPI report, which is far too stale to matter for the FOMC by this point, but will at least help to shape expectations for the PCE report due in mid-March. The latest Chicago PMI figures are also due, though are also unlikely to ‘move the needle’ especially much. Elsewhere, Q4 Canadian GDP should point to the economy having stagnated in the last three months of 2025, while German CPI figures will act as a prelude for the ‘flash’ eurozone data released next week.
Besides that, BoE Chief Economist Pill is scheduled to make remarks at lunchtime, and participants are likely to remain attuned to geopolitical developments, as well as the potential for gapping risk over the weekend pending any escalation in Middle East tensions.