All Hail Nvidia, First Shots in Currency War? AMD Breach, Inflationary Crude
Have you wondered why NVDA has been so strong after its 10-for-1 stock split and AAPL started to consolidate? Here's your answer.
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Traders, and night owls alike may have noticed currency valuations jump overnight as midnight rolled on into the zero-dark hours of Thursday morning. The U.S. Dollar Index has been stable, resting between 105.25 and 105.30 until around 02:00 Eastern Daylight Time. By 04:30, the DXY ticked above 105.50.
The news came out of Zurich. The Swiss National Bank had reduced its main policy rate (known as the SNB Policy Rate) from 1.5% to 1.25%, while projecting consumer-level inflation of just 1.3% in Switzerland this year followed by 1.1% in 2025 and an even 1% in 2026.
This came as a mild surprise, and as readers know, comes after the Bank of Canada and European Central Bank had already made their first rate cuts of the global "easing" cycle earlier this month. The SNB statement cites inflation that had risen to a "whopping" 1.4% in May, but also projects 2024 GDP growth of just 1% for 2024 and growth of around 1.5% for 2025.
Was this cut necessary? Inflation surely could not have been the spark, though the statement acknowledges inflation elsewhere. A stimulative cut in borrowing costs? While I do see growth of 1% as sluggish, it is not that close to being in contraction and certainly not in crisis.
Have the first shots in the currency war of 2024-25 been fired? That, my friends, is a good question. The answer is a definite "maybe."
All Hail Nvidia
In a note on Monday, the BlackRock BLK Investment Institute's Jean Bolvin wrote "The AI rally is supported by earnings and has more room to run, in our view. We don't see an AI bubble." Bolvin added that a "concentrated group of winners" will likely drive equity market returns over the next year or so, while also warning..."This capex boom and draw on resources could create bottlenecks, meaning AI will likely be inflationary in the near term before unlocking any of the long-run benefits that could ease inflationary pressure." Bolvin adds "This nuance is not appreciated by markets or central banks in our view."
Almost simultaneously (on Monday), State Street Global Advisors confirmed that Microsoft MSFT would maintain its top spot in the S&P Technology Select Sector Index, while Nvidia NVDA would be elevated to number two in the index, pushing Apple AAPL out of that elite position. As a result of this shift, the Technology Sector SPDR ETF XLK would likely be forced to purchase almost $10B worth of Nvidia stock, while selling more than $11B worth of Apple stock.
After the dust settles, both MSFT and NVDA will weigh roughly 21% upon the XLK, while AAPL's weighting drops all the way from 22% to 4.5%. Just in case you wondered why NVDA had been so strong after its 10-for-1 stock split and why AAPL had started to consolidate after that stock broke out more than a week ago.
This week alone, Hans Mosesmann of Rosenblatt Securities, Ivan Feinseth of Tigress Financial, and Ruben Roy of Stifel Nicolaus, (all rated at five stars by TipRanks) all reiterated "buy" ratings on NVDA. Mosesmann took his price target from $140 to $200, Feinseth reiterated a $170 target, and Roy upped his target from $114 to $165. Additionally, the also five-star-rated Aaron Rakers of Wells Fargo was assigned NVDA on Tuesday and increased the bank's target for that stock from $125 to $155.
As a Result...
Nvidia stock popped for a 3.5% gain on Tuesday, closing at $135.58 and is trading up another 3.4% through the wee hours as I type out this note. I see NVDA trading with a $140 handle.
Nvidia had already claimed the title of "world's most-valuable" company. Apple stock was down 1.1% on Tuesday and trading close to flat very early on Thursday morning.
All the While...
Nvidia's closest rival in the AI-capable GPU race, though the race is not close, ran into some trouble on Tuesday. Former Sarge fave (I'm still long some, as I am the above names stocks) Advanced Micro Devices AMD gave up 3.38% on Tuesday as IntelBroker, a hacker and moderator on the "Breach Forums" platform, claimed that it had stolen a significant amount of sensitive information from AMD including financial information, future product plans, and technical specification sheets. AMD was said then to be looking into these claims.
On Wednesday, Bloomberg News reported that AMD had released a statement that read "Based on our investigation, we believe a limited amount of information related to specifications used to assemble certain AMD products was accessed on a third-party vendor site. We do not believe this breach will have a material impact on our business or operations." I have seen AMD shares trading up small this morning.
Anyone Else Notice This?
There's been a nearly 5% rise in the price of WTI Crude this week. Anyone else notice that even with dollar values rising this morning versus its peer currencies, that crude has largely held those gains made on Tuesday and Wednesday? Yeah, that's inflationary.
Remember when I wrote (and said on-air) that I saw a growing possibility for a coming period of stagflation? A couple of palookas, including well-known academics at major U.S. universities, tried to call me out just for having such thoughts. That idea, by the way, is still a realistic threat, especially with the economy visibly slowing.
Heads Up
The Atlanta Fed will revise their GDPNow model for the second quarter later this morning, after the Census Bureau reports on May Housing Starts.
Readers are reminded that the Atlanta Fed's model is currently humming along at growth of 3.1% (q/q, SAAR), but that this is an outlier. The models produced by the New York, St. Louis, and Cleveland Feds all show Q2 GDP growth currently in a range spanning from 1.91% down to 0.67%.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 7.02%.
07:00 - MBA Mortgage Applications (Weekly): Last 15.6% w/w.
08:30 - Initial Jobless Claims (Weekly): Expecting 238K, Last 242K.
08:30 - Continuing Claims (Weekly): Last 1.82M.
08:30 - Housing Starts (May): Expecting 1.375M, Last 1.36M SAAR.
08:30 - Building Permits (May): Expecting 1.45M, Last 1.44M SAAR.
08:30 - Philadelphia Fed Manufacturing Index (June): Expecting 4.6, Last 4.5.
10:30 - Oil Inventories (Weekly): Last +3.73M.
10:30 - Gasoline Stocks (Weekly): Last +2.566M.
The Fed (All Times Eastern)
16:00 - Speaker: Richmond Fed Pres. Tom Barkin.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ACN (3.17), CMC (1.02), DRI (2.61), JBL (1.85), KR (1.36), WGO (1.34)
At the time of publictaion, Guilfoyle was long NVDA, MSFT, AAPL and AMD equity.
