The week kicks off on a weak note following a moody trading session across Europe and the US on Friday. One of the most significant moves of last two trading days of the US was a 10% selloff in Nvidia (NASDAQ:NVDA) sales for no reason other than the fact that it was the end of the month, the end of the quarter and the end of H1, and investors preferred taking profits while they repositioned for the new half than buying more Nvidia shares at peak levels, and at a very high valuation with little certainty regarding how to value a stock that’s price-to-projected sales hit the highest of the S&P 500. But still, Nvidia is expected to deliver around $28bn in the Q2, more than double the same time last year, while Microsoft (NASDAQ:MSFT) is expected to announce 15% sales and Apple (NASDAQ:AAPL) just 3%. It’s just that, no one really knows at this point, if Nvidia deserves a higher price tag.
The problem with that is, because the US Big Tech stocks led by Nvidia were responsible for most of this year’s rally in major US indices – because the S&P 500’s equal weight index remained far behind the normal weighted index since at least a month, any weakness in the US tech rally could mean the end of the party for the major US indices.
This week, the US will reveal its latest GDP update on Thursday. US growth is expected to be revised slightly higher from 1.3% to 1.4% down, but that’s down from 3.4% printed a quarter earlier. And on Friday, investors will focus on core PCE data – the Federal Reserve’s (Fed) favorite gauge of inflation. The latter better be soft enough to prevent a broader selloff in US indices. On the individual front, FedEx (NYSE:FDX) and Micron Technology (NASDAQ:MU) are due to release earnings.
Elsewhere, appetite is limited. The Stoxx 600 in Europe was toppish last week as the French political uncertainties occupied the headlines. The EUR/USD sold off to 1.0670 on Friday and is trading a touch below 1.07 at the start of the week. Le Pen’s National Rally increased its lead in the polls for the upcoming legislative elections to 36%, while Emmanuel Macron’s centrists stand near 20% support. French risks will likely remain a shadow over the single currency at least until the election.
In Japan, the USD/JPY is dangerously flirting with the 160 level – a level which had brought the Japanese policymakers to intervene to stop the bleeding back in April. The Japanese Vice Finance Minister Kanda told reporters that they are ready to intervene 24 hours a day if necessary. The net speculative short positions against the yen remain relatively high despite the rising risk of a currency intervention. The latter means that the USD/JPY could post a rapid fall in case a BoJ-triggered price action clears a part of these short positions, but currency intervention alone will hardly send the USD/JPY into a sustainable bearish trend; the Bank of Japan (BoJ) must change its rate policy that leads to such a strong yen selloff in the first place.
In energy, US crude is lower this Monday morning after having tested and failed to clear the $82pb resistance last Friday. Trend and momentum indicators remain in favour of a further rise while the RSI index is not yet pointing at extensively bought market conditions. Clearing the $82pb level, the major 61.8% Fibonacci retracement on April to May selloff, should act as a strong signal about the viability of the latest rebound and could throw the foundation of a further rise toward $85pb. But clearing the $82pb could be difficult with sputtering China.
Chinese equities begin the week on continued downside pressure. The CSI 300 fell to an almost 4-month low on the back of an insufficient rebound in economic activity, copper futures remain also under the pressure of a slow Chinese rebound.