Powell stood his ground at Jackson Hole. Despite speculation and academic calls suggesting otherwise, Chair Powell reiterated his commitment to the 2% inflation target. He also stated that continued strong growth in the US could require additional policy tightening given inflation remains above target.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
We standardise WoW price changes across different markets to allow for cross-market comparisons.
Last Week’s Highlights
Powell stood his ground at Jackson Hole. Despite speculation and academic calls suggesting otherwise, Chair Powell reiterated his commitment to the 2% inflation target. He also stated that continued strong growth in the US could require additional policy tightening given inflation remains above target. What was new is that he displayed less confidence that policy is restrictive enough. This quote stood out:
‘We cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint’.
NVDA blew past expectations…again. Nvidia reported last Wednesday. Despite hefty expectations, the company delivered over and above: revenues grew by 88% versus a year earlier, while earnings more than doubled. Yet the stock languished. Guidance continues to improve, which means the stock is now trading at a forward P/E of 32.4x, the lowest since January (Chart 3)!
On Nvidia, we have two takeaways:
- Nvidia has a clear edge in both software and hardware thanks to their H100 chips and the CUDA software platform. However, AI’s current impact on the global economy is more micro than macro. This is because we are seeing parts of the semiconductor-supply chain linked to the data center benefit more than the data centers themselves. On the semi side, NVDA is benefiting the most rather than semiconductor firms more broadly. An example of this is TSMC, which has not seen a large pickup in demand for their fabs – so any improvement from the AI side is offset by weakness in broader consumer electronics. AMD is another example of a company that makes GPUs but lacks NVDA’s technology edge and/or the software capabilities of CUDA.
- There is an insatiable demand for NVDA GPUs right now, which is allowing them to really push price. Gross margins expanded by 600bps on a GAAP basis (less on a non-GAAP basis). This is helping to fund $25bn of buybacks, which will continue to add a bid on the stock. The read-through is that their new chips are fully ordered well into Q3 next year.
German flash services PMIs came in below expectations. The German manufacturing PMI beat expectations (still below 40 though), while services dropped below 50 to 47.3. This means the German composite PMI now stands at 44.7, the lowest (excluding the COVID crash) since 2009. This release pressured the euro, which fell more than 0.5% last week (Chart 2). Oil also fell immediately after the release but later recovered as the inventory data held up in the US.
What to Watch
Will they or won’t they? ECB speakers ponder a September hike. This week is well stocked with opportunities for ECB speakers to make themselves heard. Nagel, de Cos and Holzmann are scheduled to speak on Monday, Schnabel and de Guindos will speak on Thursday – after the CPI, unemployment data, and the minutes for the last ECB meeting are published that day. The most recent comments have been more on the dovish side but cautioned against reading too much into survey data (like the PMIs).
How dovish is the new RBA governor? The upcoming speech at the Sir Leslie Melville Public Lecture from the incoming governor will cover ‘climate change and central banks’. Ben is not expecting this speech to move the needle. But given the growing impact of climate change on the agenda, it could mean something interesting for the latter stages of her tenure.
Is New Zealand in a recession? This Thursday we get the latest ANZ survey, which has improved in recent months in contrast to the NZIER’s quarterly forecasts (NZ Institute of Economic Research – the influential thinktank). Ben is also looking out for the services inflation expectations segment, which has been a useful metric for tracking services CPI in the post-COVID period.
Turning to the US…it is jobs data week. We get non-farm payrolls (NFP) this Friday where consensus expects job growth to decelerate further to 170,000. We have had two misses on the bounce recently so given the recently acquired confidence in the US growth story, a weak jobs report could derail this somewhat.