European stock markets are sliding this morning, taking their cue from Asian bourses overnight. The FTSE 100 is down 0.3 per cent, while the Dax and Cac are down by slightly less. In London, Marks & Spencer is doing its best to boost the blue chip index, with shares up 3 per cent following a dividend hike. It’s another busy day for quarterly updates, with Experian leading the fallers, down 5 per cent despite record earnings. More on these stocks and others here
The sell-off in global bond markets has also checked the record-breaking rally in US stocks. US 30-year yields touched 5.19 per cent, the highest in 19 years, while the benchmark 10-year yield rose to a one-year high at 4.687 per cent. It comes amid rising inflation fears from the ongoing closure of the Strait of Hormuz on top of underlying fiscal worries about rising debt and deficit levels, Big Beautiful Tax Bill and tariff uncertainty. Wall Street logged its third straight decline on Tuesday as Treasury yields rose to levels that tend to weigh on almost all risk assets. The S&P 500 fell 0.67 per cent while the Nasdaq dropped 0.84 per cent. Both hit record highs last week with earnings flying higher but the rise in yields was the one thing that could really check the ascent.
The level of the yields is one thing, the pace at which we got here is another. It’s largely a reaction to last week’s hot PPI inflation report; the US-Iran stalemate is nothing new, albeit incrementally on the margins the longer the Strait is closed the worse the inflation risk gets. HSBC said yields at these levels are in the “danger zone” but in the US at least it’s against the backdrop of a resilient economy, robust labour market and rising corporate earnings.
UK inflation fell to 2.8 per cent last month, declining from 3.3 per cent in March, as base effects and government efforts to curb energy prices. The print seems to be helping ease pressure on gilt yields, which have come back down a bit from their recent highs. Labour leader hopeful Andy Burnham talking up the fiscal rules helped no end, too. While inflation is still seen picking up towards 4 per cent, the data underscores the Bank of England’s decision to wait and see what happens in terms of second-order inflationary impulses. UK 10-year and 30-year gilt yields declined at the open in London and two-year yields dropped 5bps to 4.46 per cent, with the front end generally a lot more sensitive to policy rates.
Nvidia reports tonight, and can that save everyone? My bet is the bond market is more intimidating to risk assets in the near-term and we’re likely to see further pullback for US stocks. Last time Nvidia reported $68bn in quarterly sales, more than 90 per cent of which came from its data center segment. This time, Wall Street’s expecting an even bigger haul – $78.8bn, with profits doubling to $42.5bn. Worth noting that it’s beaten earnings estimates for 13 quarters on the bounce.
Another key question is whether margins, currently in the mid-70s per cent range, can be maintained given the cost of materials such as memory chips and advanced packaging materials, which have surged lately. There are three key questions Nvidia needs to answer: can it ease scepticism over the pace of AI capex by the hyperscalers; can it defend its position in the market as hyperscalers seek alternatives; and the latest progress on the Vera CPUs, which are due to begin shipping in the second half of the year at a time when the CPU space is booming. Read more on CPUs here
By Neil Wilson, investor strategist at Saxo UK
