September began on an ugly note, to say the least. The US equities tumbled after the latest ISM data showed a fifth month of contraction in the US manufacturing, and at accelerated pace. The latter revived the recession worries ahead of this week’s critical US jobs data, and sent the S&P500 more than 2% down. This was the worst selloff since August 5, when a weak jobs data from the US had boosted the recession worries, the expectation of a 50bp cut from the Federal Reserve (Fed) and resulted in an almost 10% selloff of the S&P500. The technology stocks led losses, yesterday. Nasdaq 100 dived more than 3%, as Nvidia tumbled nearly 10% as part of the broader macroeconomic worries and suspected AI fatigue, and another 2.42% in the afterhours trading on news that the DoJ sent subpoenas to the company because it suspects that Nvidia violated antitrust laws, made switching harder to other chipmakers and penalized companies that didn’t use Nvidia’s AI chips exclusively. In Asia, TSM tumbled 5%, and SK Hynix fell more than 8%.
Now we know that the antitrust allegations are part of the daily life of all Big Tech companies. They come and go without doing too much harm to these Big Tech’s growth potentials as many of them are natural monopolies and others naturally benefit from their dominant market positions. But the news come at a time when Nvidia is vulnerable. Just a week ago, the company released blowout results. They exceeded their own sales forecast by $2bn for the fifth consecutive quarter, gave a strong – and a stronger-than-expected – forecast for the current quarter, announced a big stock buyback and addressed issues regarding the delay of the Blackwell chip saying that there is nothing to be worried about. But yet, the stock price fell as investors focused on potential problems – like what if the Big Tech cut their AI spending. But hey, the Big AI spenders like Meta and Google said that they will continue to spend big – and overspend if necessary – to make their AI investments worth. What I am trying to say here is that, except the DoJ news, recent news from Nvidia could’ve been interpreted in a positive way, but they have not. To me, this is a sign of fatigue.
And it’s in the middle of this bad mood that Broadcom is preparing to announce good results this week thanks to a rebound in networking equipment sales like Cisco and conversion from perpetual licenses to subscription model for VMware, acquired last year. Unfortunately, good results may not lead to a positive market reaction… The stock already tanked more than 6% yesterday, and no one can guarantee that good looking results would reverse the selloff…
… because the broad macroeconomic environment is not necessarily supportive of risk appetite right now.
Bad news is bad news for everyone
The slowing US growth and soft data boost the recession worries and rate cut expectations. The rate cut expectations favour a sector rotation from highly valued Big Tech toward the non-tech pockets of the market. BUT the expectation of jumbo rate cut is bad for all stocks, regardless of their technology exposure. Yesterday, Nasdaq certainly recorded the biggest loss but the Dow Jones fell 1.5% from an ATH and the Russell 2000 dropped 3%. Bad news is bad news for everyone.
In bonds, the US 2-year yield fell to 3.85% as expectations of a jumbo cut rose on yesterday’s data, the probability of a 50bp cut from the Fed in September rose above 40%, the 10-year yield retreated to 3.82% and the 30-year yield fell to 4.10%. All eyes are on the US jobs data – which has the potential to either make things worse or throw a floor under the recent risk selloff. Today, the job openings data is expected to show fewer job openings. On Thursday and Friday, the ADP and the official jobs data are expected to show a rebound in hiring and wages. And good news will be good news when the US reveals its latest jobs figures this week.
FX and Energy
Crude oil tumbled more than 5% yesterday and is testing the $70pb support to the downside. Rising recession worries, the expectation of waning global demand, prospects of fewer production restrictions from OPEC, combined with the falling tensions in Libya that could allow half a million barrels return to the market, are weighing on oil prices this morning. I believe that sufficiently strong jobs data between now and Friday could bring the dipbuyers to the market, yet if the jobs data looks ugly, we could see US crude settle below the $70pb for a while.
In the FX, the falling US yields didn’t pull the dollar index lower yesterday, as the greenback benefited from risk-off inflows. As such, the EURUSD extended losses to 1.1026 as Cable tipped a toe below 1.31. Both are better bid this morning. A soft set of economic data from the US could bring the USD bears back to the market, but if the market shifts to the panic mode, the dollar selloff could remain limited.
