By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Sentiment struck a steadier tone yesterday, helped by Nvidia delivering a classic ‘beat and raise’ in their Q3 report, while the dollar advanced notably against most peers. Today, the September US jobs report steals the limelight.
WHERE WE STAND – Christmas is coming, and so is a Bank of England rate cut.
Governor Bailey now looks almost certain to play the role of Santa Claus at the final MPC meeting of the year, leading a majority of the Committee in voting to lower Bank Rate by 25bp, after a relatively cool slate of inflation data yesterday. Headline CPI rose 3.6% YoY last month, in line with the Bank’s forecast, and largely confirming that inflation has now peaked. Measures of underlying price pressures also eased, with core CPI dipping to 3.4%, its slowest pace since March, and services CPI easing to 4.5%, the slowest pace seen this year.
Everything does now seem to be aligning for the MPC to embark on something of a dovish pivot, not only with headline inflation having peaked, but also amid the reducing risk of inflation persistence, and the considerable degree of labour market slack that continues to emerge. Providing that Chancellor Reeves avoids any inflationary policies in next week’s Budget, I stick with my base case that the BoE will deliver 25bp cuts both next month, and at the following meeting in February.
Unsurprisingly, the quid softened on the back of the inflation figures, as cable dipped under the $1.31 mark, while the curve now implies almost a 90% chance of a cut next month. To my mind, risks to the pound still tilt firmly to the downside, and I’d not be ruling out a break under the $1.30 figure in the relatively near future.
Anyway, focus for most market participants wasn’t on the ‘Old Lady’ yesterday, but instead on the ‘most important stock in the world’. That tagline is a bit sensationalist, but Nvidia earnings have become a proper macro event these days, given not only the stock’s huge index weightings, but also how it has become a bellwether for the AI theme at large.
NVDA duly delivered a classic ‘beat and raise’ after hours yesterday, not only topping both top-and bottom-line expectations, with EPS at $1.30 and revenues at $57.01bln in Q3, but also hiking Q4 revenue guidance to between $63.7bln and $66.3bln, above the consensus figure of $61.9bln. All of this, on margins well above 70%…I’m running out of superlatives to describe the figures at this stage, to be honest, though the market clearly isn’t, with NVDA popping as much as 5% after hours yesterday.
With the risk of Nvidia earnings now out of the way, and with the market seemingly content to buy back into the AI theme in the aftermath of the report, at least selectively anyway, I’m relatively confident to call an end to the recent slump that we’ve seen across the equity space, especially with spoos reclaiming the 50-day moving average this morning.
Hence, participants should now be able to focus back on the fundamental bull case (which hasn’t changed!!) of the resilient underlying economy, robust earnings growth, a calmer tone on trade, and a looser monetary policy backdrop. Further tailwinds from chunky corporate buybacks, plus FOMO/FOMU flows into year-end, should provide a helping hand as well, with the path of least resistance continuing to lead to the upside.
Away from those Nvidia earnings, it’s worth me mentioning that it was actually a rather volatile day in both the FX & FI spaces yesterday – which makes a nice change from the turgid conditions that we’ve seen recently!
The greenback gained broadly against most peers yesterday, though it must be said that there was no obvious catalyst for the move. In any case, demand for the buck was enough to not only push the DXY back above its 200-day moving average, but to see spot reclaim the 100 figure as well, for the first time in a couple of weeks. My base case remains that we increasingly move back towards the right-hand side of the ‘dollar smile’ into 2026, as ‘US exceptionalism’ comes to the fore again, which should clearly favour USD bulls, who have momentum on their side right now too.
UK bears have momentum in their favour as well, with Gilts selling-off pretty aggressively across the curve yesterday, underperforming G10 peers, as political concerns continued to weigh. Blimey, if I had a quid for every time I’d written that recently I think I could fill the fiscal ‘black hole’ myself!!
Regardless, participants seem increasingly concerned about the political fallout from the Budget, namely Starmer & Reeves’s future if things land like a ‘lead balloon’, and much less concerned with the actual announced measures themselves. This makes sense, given the plethora of rebel MPs waiting in the wings for an opportune moment to pounce, and reinforces my view that risks tilt almost completely to the downside for the GBP, and Gilts for the time being.
LOOK AHEAD – From NVDA, to NFP.
Yes, although it’s a Thursday, today is still ‘jobs day’, with the much-delayed September US labour market report due this lunchtime. Headline nonfarm payrolls are set to have risen by +55k on the month, roughly double the pace seen in August, and a pace that would be roughly in line with the breakeven rate. Average earnings, meanwhile, are set to have risen 0.3% MoM/3.7% YoY, both unchanged from the pace seen in August, with unemployment also set to have held steady at 4.3%.
For markets, I’d wager that focus falls more on the pure macro story told by the data, as opposed to any policy implications of the data. That is unless we were to see a super-hot report, which would kill the chances of another Fed cut this year, and probably spark a bout of risk aversion as a result. I’d wager that the ‘goldilocks’ zone for the payrolls print is probably 30k to 70k, which would keep a cut on the cards, but also point to the labour market remaining resilient enough not to trigger undue concern. Of course, given what we heard from the BLS yesterday, this is the last jobs report that we’ll be getting before the December FOMC, hence while stale, the figures do take on even greater importance.
Besides NFP, we also get the latest US jobless claims and existing home sales stats today, as well as six Fed speakers, though the jobs report should comfortably overshadow all of that lot.