In a US equity market driven by the theme of generative artificial intelligence models and more generally by technologies linked to AI, investors' attention has turned away from economic statistics and the speeches of central bankers to focus on only one company: Nvidia. The most important stock on planet Earth according to Goldman Sachs! The frenzy around the title was also palpable with mountains of derivative products processed, some even putting in place quite crazy bets such as the call option targeting a share price of $1,300 on Friday, almost the double the level of Wednesday. Why such market interest? Little known to the general public until a year ago, Nvdia took advantage of the very strong enthusiasm around artificial intelligence (AI) to reach stock market heights (capitalization close to $2,000 billion). In fact, the group designs graphics cards (GPU) which are essential for developers of AI models (OpenAI, Meta, Google, etc.). In any case, Nvidia did not disappoint even though the bar was already set very high in terms of expectations. Thus, in 2023, revenues stood at $60.9 billion, more than double compared to the previous year! Unsurprisingly, the stock soared after this excellent publication, leading in its wake to a strong rally in the American and European markets which broke records after records. Certainly, this very good performance can be explained by a generally reassuring results season, but the recent saying “As goes Nvidia, so goes the market” seems to be indeed true.
Although overshadowed by Nvidia, the publication of the Fed minutes should not be forgotten. These confirmed that the time was still for caution: the members of the institution noted the progress made on inflation but many of them also highlighted the risk of seeing financial conditions easing too quickly. Same message from the ECB which displays a very cautious tone in the face of the fear of persistent inflation. On Friday, Christine Lagarde indicated that the signs of slowdown in wage growth observed in the 4th quarter are encouraging but not sufficient. Moreover, the preliminary PMI indices in Europe clearly indicate that the low point in terms of activity is close to being exceeded and the ECB therefore does not seem to have any reason to urgently lower its key rates. In more detail, the services PMI index particularly rebounded to return to the threshold of 50 in February (compared to 48.8 anticipated) while the manufacturing sector disappointed (46.1 compared to 46.6 in January) penalized by the weakness of activity in Germany (manufacturing PMI at 42.3 compared to 45.5 in January). In the United States, the PMI figures were also reassuring with a moderation of activity in the services sector in February (at 51.3 against 52.3 anticipated) but a manufacturing PMI which is regaining color (at a high point since October 2022, to 51.5 compared to 50.7 in January).
Finally, as specified in our meeting on Monday February 12, 2024, China has intensified its efforts to support its stock market but also save a flagging real estate sector, where demand for credit has still not seen a rebound. The authorities have thus tightened the rules on short sales while the central bank has decided to ease its monetary policy more significantly by lowering the 5-year credit rate (reference rate for mortgage loans) from 25 bp to 3 .95%. While this news was well received by the market, further measures will surely be necessary to sustainably restore investor confidence. It should be noted that the rebound that began before the Chinese New Year public holiday break seems to be confirmed, thus meriting closer attention.
If the previous week was focused on artificial intelligence, this week the markets should refocus their attention on the economic landscape. We will therefore monitor, in particular, the first estimate of the February consumer price index for the euro zone and the PCE index in the United States.