The Week Ahead: Can Nvidia results and CPI calm markets?
As we start a new week, investors are still digesting the extreme price action that we witnessed last week. The S&P 500 made two fresh record highs last week, yet after an ugly session on Friday it closed the week down 1.67%. The S&P 500 starts a new week extremely close to its 50-day and 100-day simple moving averages, a break below these key support levels would be a bearish development for the main US blue chip index.
US stocks fell sharply on Friday, with the S&P 500 down 1.7%, and the Nasdaq down by more than 2%. US stocks’ underperformance vs. European stocks has widened, as US indices had their worst day of the month so far. The triggers were varied: 1, a bearish reaction to a Chinese news article about a new virus, 2, weak US PMIs and a rise in inflation expectations in the University of Michigan consumer confidence survey for February, which pushed Citi’s US economic surprise index to its lowest level since September, 3, a $2.7trn options expiry likely added downward pressure to the sell off.
Is stagflation on the cards for the US economy?
There is undoubtedly a bearish tone to markets these days, and this was reflected in the latest CFTC positioning data. US Treasuries saw their largest inflows for 7 years, the FX market saw a further decline in long dollar positioning and a pickup in euro longs, while in the equity space there was broad based selling of S&P 500 futures. Weak sentiment towards US assets is also led by a fear of higher inflation at the same time as the economy is weakening. Stagflation fears tend to be unwelcome news for equities. The risk of a tipping point for US equities is increasing. We will be watching the correlations between S&P 500 stocks closely in the coming days and weeks. The implied volatility in the S&P 500, which measures the volatility of the Vix index and is a good measure of how stocks are moving in relation to each other, spiked last week. Although this is at a relatively low absolute level, the fact that this is moving higher is worth watching as it could signify a broad-based sell off is brewing.
There is also a theory that stocks will sell off on a Friday to avoid being blindsided by an unexpected policy announcement from President Trump. The US President was mostly quiet this weekend, so we will have to see if this leads to any let up in the selling pressure on Monday.
Treasury yields to the rescue: yields could be supportive for risk and growth
Bonds were the clear winner last week, as risk aversion took hold. The 10-year US Treasury yield fell below 4.5%, which is considered a key psychological level. While some of this was a rotation out of risky assets and into bonds, there is also a fundamental reason for the decline in bond yields, which could help cheer markets at the start of a new week: the decline in the oil price.
Oil falls to fresh low
WTI and Brent crude fell nearly 3% on Friday, and WTI is hovering just above the crucial $70 per barrel level. WTI made a fresh low for the year on Friday, and Brent crude is not far from its 2025 low. Ample oil supply, the prospect of peace in Ukraine and sanctions being lifted on Russian oil supplies, as well as signs of a slowing US economy did not help, after the composite US PMI reading fell to 50.4 down from 52.7 in January. The spread between the front month WTI contract and the March 2025 contract has fallen sharply and is at its lowest level of the year, as spot oil prices continue to come under downward pressure. The US oil market is currently in contango – future months’ contract prices are higher than the spot price, which is a sign that the market remains bearish on oil in the short term.
Looking ahead, whether or not the sell off continues may depend on this week’s key developments. Events in Ukraine, an uneasy ceasefire between Hamas and Israel, the German election results and plethora of central bank speak could all impact financial markets this week. Below we look at two events that we think will be crucial for market sentiment in the coming days.
1, Global CPI reports
Bonds have been outperforming US and European stocks in recent days, which means that key inflation reports released this week could determine if this trend continues in the coming days. In Europe, provisional readings of French, German and Spanish CPI for February are all released this week. The overall Eurozone reading for January will be released later on Monday, however the national data for February will be more market-moving, in our view. The market is expecting a decent uptick in monthly prices for February, which is largely down to a sharp increase in electricity and gas prices earlier in the month. This provisional reading will not take account of the sharp decline in gas and oil prices on the back of renewed hopes of an end to the conflict in Ukraine and the potential return of Russian energy supplies to the global markets. However, annual CPI rates are expected to decline. The French annual rate of CPI is expected to moderate to 1.2% from 1.8% in January, the German rate is expected to decline to 2.6% and the Spanish rate is expected to remain steady at 2.9%. We think that the moderation in French and German CPI this month may mean that ECB speakers this week will remain on the dovish side. The bulk of ECB speak in the past month has been dovish. However, there is a note of caution in some recent ECB members speeches. Spain’s ECB President said that the ECB need to be cautious given the extraordinary uncertainty in the global economy. However, the head of the Bank of France said that the ECB’s policy rate could hit 2% in the summer, although he added that it is unclear what would happen to rates beyond this level. This may be perceived as slightly dovish since the interest rate futures market currently expects ECB rates to be just under 2.1% this summer.
The main economic event for markets this week will be the US PCE report on Friday. The market expects core PCE for January to rise 0.3% on the month, but for the annual rate to decline to 2.6% from 2.8%. The January CPI report surprised on the upside, and there is a chance that the same could happen to PCE. If we do get a higher-than-expected PCE reading for last month, this could ignite stagflation fears in the US economy, as the PMI report for February showed a rapidly weakening economic backdrop. Although there are initial signs that growth could be slowing in the US, it could be enough to trigger a further decline in US stocks, higher than expected PCE could also weigh on US bonds, but it may boost the dollar, after a weak performance so far this year.
Interestingly, US companies with the greatest overseas exposure are reporting stronger earnings than companies with a majority of domestic exposure for Q4, even though the dollar was strong in the final months of 2024. This could be an early sign that US economic growth is faltering. The earnings growth rate for companies that generate more than 50% of their earnings overseas was more than 20% in Q4, above the 16.9% reported for companies that generate more than 50% of their earnings inside the US, according to FactSet. For internationally focused companies, Nvidia was a big contributor to earnings growth, which leads us nicely onto the second event to watch this week.
2, Nvidia earnings
Wednesday night will see Nvidia report its earnings for last quarter. 2025 has seen the once mighty Nvidia fall from its perch. It was one of the best performing stocks in 2024, yet Nvidia is down more than 1% so far in 2025. Also, it is no longer the biggest contributor to the performance of the S&P 500, that accolade now goes to Meta.
The biggest change to Nvidia has been the arrival of DeepSeek, the Chinese version of ChatGPT, which claims to use cheaper and less advanced chips to power its AI models. This has threatened Nvidia as the world’s largest maker of the most advanced GPUs. While the period of this earnings report will not include the news about DeepSeek, the world will be watching to hear what Nvidia’s CEO Jensen Huang has to say about DeepSeek and what this means for future demand for Nvidia products. Analysts have reduced their expectations for Nvidia’s EPS and revenue forecasts for the prior quarter in the last 4 weeks, however, revenues are expected to rise to $38.26bn, higher than the $35.08bn recorded in the prior quarter. The market expects Nvidia to meet revenue estimates, and for it to raise its guidance for the current quarter. Forward guidance is the most important aspect of these results, and we expect Huang to tell the market that its latest Blackwell chips are selling well now that initial supply chain issues have been overcome. Sales of the Blackwell chip could exceed guidance, which may boost sentiment towards the stock. Although Nvidia’s stock price is down more than 7% in the past month, its worth noting that Nvidia’s main customers including Meta, Microsoft, Google and Amazon have all boosted capital spending for this year, which should be positive for Nvidia. We think that Huang will focus on this during his conference call and will not cite DeepSeek as a threat to Nvidia in the near term. Although margin growth could fall for the last quarter, if sales of Blackwell chips beat expectations, then the company may boost expectations for future margin growth.
As mentioned, Nvidia’s share price has been particularly volatile this year, and is lower YTD. The average move in Nvidia’s share price 24 hours after an earnings report is 4.95% over the last 8 quarters. However, with stock markets on edge, and value stocks outperforming growth stocks, we think that Nvidia will need to give extremely strong forward guidance and an upbeat outlook for future Blackwell chip sales to see an increase in its stock price of this magnitude.
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