AI surge fuels stock market gains

In focus today

The main event today will be the German Ifo print for February. The Ifo survey covers many more companies than the PMIs and it has somewhat contrasted the uptick seen in manufacturing PMIs previously. Moreover, the Ifo survey is yet to bottom out and expectations have not moved up in contrast to the ZEW. 

Economic and market news

What happened overnight

Things were generally quiet overnight. In China, prices of newly built homes in tier-1 cities fell 0.7% y/y. Both Fed Governors Lisa Cook and Cristopher Waller suggested they needed more confidence that inflation was normalizing before they could cut rates, with Waller specifically noting he would need "at least another couple of months of inflation data". We expect the Fed will deliver its first cut in May.

What happened yesterday

Yesterday was a great day for stock prices as it seems that AI-optimism fuelled a market boom, after Nvidia beat quarterly earnings expectations by some margin. Tech stocks were the big winner with the Nasdaq Composite up 2.96%, but broader indices such as the MSCI world and European STOXX600 also gained, with the latter hitting an ATH driven particularly by tech stocks.

We also got a slew of data from the euro area. First, euro area composite PMIs for February drew a mixed picture with service PMIs beating expectations and manufacturing PMIs declining, especially due to a plunge in German manufacturing PMIs. The figures indicated increasing price pressure in services, which is a worrying sign for the ECB. The ECB minutes from the January meeting showed policymakers signalling patience and caution in easing too early. Final HICP inflation confirmed the flash headline inflation estimate of 2.8% y/y but suggested softer underlying inflation momentum than the flash estimate, however, this was in large part due to one-offs and tax increases.

We also got PMIs from both the UK and US, which overall were not game changers, reflected also in muted market reactions. The UK figures suggested modest growth in Q1 2024 especially due to services, while US PMIs painted a positive outlook for manufacturing which rose to 51.5, especially due to new orders (domestic and foreign), while services saw weaker incoming new business.

Equities: Global equities were markedly higher yesterday with so many interesting aspects. Nikkei 225 made the first all-time high in nearly 35 years, up almost 17% year to date. Stoxx 600 set new all-time high together with S&P500, and Nasdaq had its best session in more than a year. We make two conclusions: This is not just about seven stocks in the US. Secondly, tomorrow it has been two years since Russia invaded Ukraine, the war is still ongoing and MSCI world has returned more than 20% in the same period. Please be careful in underestimating the power of macro impact on financial markets and overestimating the impact of geopolitics. In US yesterday, Dow +1.2%, S&P 500 +2.1%, Nasdaq +3.0% and Russell 2000 +1.0%. Asian markets are mixed this morning with the Japanese market closed. US and European futures are marginally higher.   

FI: 10y European yields spiked 5bp on the better-than-expected French PMI data, however it was quickly reversed following the abysmal German manufacturing PMI. Through the mid-day session with the final euro area inflation print and the ECB minutes yields gradually declined. Although none of the two inputs resulted in dovish vibes, the yield decline extended through the slightly lower than expected US PMI in the afternoon. Noteworthy, the better than anticipated jobless claims did not change markets. 10y Bunds ended 1bp lower on the day at 2.44% after breaking 2.5% through the day. The European curves bear flattened around the 10y point, with markets taking out central bank easing expectations now pointing to ECB rate cuts worth less than 100bp this year, while the long end rallied 4bp.

FX: Another good day for the SEK, which rose together with NZD and GBP, while NOK and JPY were the biggest loses. EUR/USD was on a roller coaster ride amid mixed signals from the release of flash PMIs first rising close to 1.09 before ending the day where it started just above the 1.08 level.