Cyclicals climb while market re-balances AI risks ahead of Nvidia results

EU mid-market update: Cyclicals climb while market re-balances AI risks ahead of Nvidia results; No surprises from Trump's State of the Union; Iran-US still set to talk tomorrow.

Notes/observations

- European equities opened firmer with a cyclical bias, led by banks, basic resources, technology and energy, while food/beverages lagged. Follows Tuesday’s mixed session but sentiment stabilized as markets reassessed the Citrini AI-disruption note; the Anthropic enterprise-agent event emphasized complementarity over replacement, and the META-AMD chip deal supported sector tone. Still, some strategists warned that Europe’s strong run contrasts with sluggish earnings momentum despite attractive valuations.

- Trump’s State of the Union offered positive economic framing and a preference for diplomacy on Iran, but little policy detail. He softened criticism of the SCOTUS IEEPA-tariff ruling. US dollar eased as risk appetite improved, while U.S. Treasury yields ticked higher with mild curve steepening.

- In Europe, Germany’s GfK confidence undershot forecasts and final GDP held at 0.3% QoQ.

- NVIDIA’s FY26 Q4 report tonight may again beat consensus, but the stock is now trading less on the magnitude of the quarter and more on whether management proves it can convert huge Blackwell demand into a smooth FY27 revenue cadence with high-quality Data Center growth (real deployments, not pipeline fill), credible shipment/backlog scaling, and clean FQ1 guidance—especially since buy-side expectations already appear above Street and options imply only a modest move. The core debate is quality and durability: investors want to know if ~75% gross margin is structurally sustainable (supported by system-level pricing power, networking/interconnect attach, software, and broader platform monetization) versus temporarily boosted by scarcity/timing, while also assessing whether AI capex across hyperscalers and model developers remains economically sustainable in terms of returns, efficiency, and free-cash-flow discipline rather than just absolute spending size.

- Competition (custom ASICs, Alphabet's TPUs. China constraints) still matters, but the more important question is whether NVIDIA can preserve leadership in the highest-value layers of the stack—rack integration, networking fabric, software, throughput optimization, and TCO—and tonight’s call is effectively a bridge to GTC (Mar 16–19), where investors will be listening for concrete Blackwell-to-Rubin execution details (validation, ramp readiness, power/cooling, integration) rather than roadmap hype alone.

- What many ChatGPT and Gemini users experienced last weekend likely wasn’t a sudden decline in model weights but a serving-layer “austerity mode” under heavy load—where providers preserve uptime by tightening thinking-time budgets, stressing schedulers/caches, and sacrificing latency, context retention, and reasoning depth, making chatbots feel “dumber” without a true outage. The bigger takeaway is that the next durable AI moat may be inference systems engineering (context virtualization, KV-cache tiering, retrieval-backed memory, adaptive compute budgets, orchestration under concurrency) rather than raw model benchmarks, especially as infrastructure costs surge, monetization pressure rises, and markets start judging which firms can reliably fund and deliver quality at scale.

- During its earnings call, Workday was pushing back on the fear that AI will displace core HR/ERP systems, arguing instead that AI agents will be embedded into the platform and monetized through larger expansions, flex-credit/API consumption, and a defensible data/process/security stack that strengthens—not weakens—its position.

- EU earnings flow was heavy. Financials saw beats from HSBC, St James’s Place and a strategic update from Santander ahead of its investor day. In healthcare, Fresenius and Haleon traded lower, while Sandoz and Novonesis outperformed. Energy and utilities reporting included Royal Vopak, Nordex, E.ON SE, Iberdrola, EDP Renováveis and Saipem. Nordex delivered a standout Q4 with revenue strength, EBITDA nearly tripling, strong free cash flow and a medium-term margin upgrade to 10-12%. Additional updates came from Glanbia and Diageo in food/bev; Heidelberg Materials, NKT, Leonardo, Bureau Veritas, Wolters Kluwer and Adecco in industrials; plus OPmobility, Interparfums, Ageas, Aena, Auto1, SEB, Jet2 and Aston Martin.

- Asia closed higher with Nikkei225 outperforming +2.2%. EU indices +0.2-0.9%. US futures +0.1-0.2%. Gold +0.8%, DXY -0.1%; Commodity: Brent +0.6%, WTI +0.6%; Crypto: BTC +3.7%, ETH +5.1%.

Asia

- Thailand Central Bank (BOT) cuts benchmark interest rate by 25bps to 1.00%; not expected; vote was 4–2; Prepared to cut rates [further] if outlook shifts; economy is not in 'crisis'.

- Australia Jan CPI M/M: 0.4% v 1.0% prior; Y/Y: 3.8% v 3.7%e.

- China PBOC 1-year Medium-Term Lending facility (MLF) setting: Leaves rate unchanged at 2.00%; Conducts CNY600B v CNY600B indicated.

- Top China chipmakers plan to increase production of advanced chip output – Nikkei.

- China may see lower rates from Q2 [inline]; cites ‘experts’ – China Securities Journal.

- Analysts warn against one-way yuan exchange rate bets; yuan trend will be driven by changes in FX settlement demand – Shanghai Securities News.

- Hong Kong Finance Sec Chan: Domestic economic trend to continue to be 'good' in 2026; 2025 GDP +3.5% - 2026 budget address.

- Large Japan brokerage firm said Yen may test post-election low if BOJ selections ‘lean dovish’.

- Japan government submits nominees for BOJ board to replace members Asahi Noguchi and Junko Nakagawa: The candidates are Toichiro Asada and Ayano Sato.

- Hong Kong: To increase stamp duty on 'some' property; specifically to increase the stamp duty for home worth >HK$100M from 4.5% to 6.5%.

Europe

- German Chancellor Merz: Generally welcome any further market opening; German and European companies see issues regarding opening markets in certain sectors in China - comments from China.

- UK OFGEM: From Apr 1st to Jun 30th energy prices will go down by £117 or 7% for a typical household who use electricity and gas and pay by direct debit - statement.

Americas

- Reportedly Trump's planned tax cut will be personal and corporate; Trump additionally notes that Iran has not yet agreed on nuclear weapon talks - press.

- Trump: Good news is 'nearly all' countries want to keep [trade] deals; new trade deals could be 'far worse' for other countries - State of the Union Address.

- Trump: Wants to 'stop all' payments to big [healthcare] insurance companies - State of the Union comments.

- Trump State of the Union: Our Nation is Back! Bigger and stronger than ever before; Unveiled “Rate Payer Protection Pledge”, stating negotiated with major tech companies to make them shoulder more (or all) of the electricity costs for their AI data centers - address at the Capitol.

Trade

- China Commerce Ministry (MOFCOM): China encourages imports of services related to chip research, development and design.

- Israel Trade Min Fisher: Hope to reduce 15% tariff set by US in upcoming talks and that certain sectors will be tariff free.

Tensions/conflicts

- Ukraine Pres Zelenskiy: Ukraine and US teams to meet on Feb 26th to discuss economic and prosperity package; US-Russia-Ukraine talks may happen early March.

Speakers/fixed income/FX/commodities

Equities

Indices [Stoxx600 +0.51% at 632.34, FTSE +0.94% at 10,780.63, DAX +0.17% at 25,063.88, CAC-40 +0.34% at 8,547.75, IBEX-35 +0.46% at 18,272.91, FTSE MIB +0.91% at 47,074.50, SMI +0.06% at 14,021.00, S&P 500 Futures +0.14%].

Market focal points/Key themes: European indices open generally higher and remained upbeat through the early part of the session; receding geopolitical concerns and rebound in software names seen supporting risk appetite; among sectors leading the way higher are financials and energy; lagging sectors include consumer discretionary and telecom; food & beverage subsector dragged following disappointing earnings out of Diageo; GSK acquires 35Pharma; Worldline to sell BillDesk; earnings expected in the upcoming US session include Nvidia, Salesforce, Pirelli and Zoom.

Equities

- Consumer: Diageo [DGE.UK] -5.5% (earnings; earnings call comments), BIC [BB.FR] -7.0% (earnings), Aston Martin Lagonda [AML.UK] +1.5% (earnings), Trainline [TRN.UK] -6.5% (CEO to step down).

- Healthcare: Sandoz [SDZ.CH] +4.5% (earnings).

- Financials: HSBC [HSBA.UK] +5.5% (earnings; call comments on buybacks).

- Energy: Nordex [NDX1.DE] +13.5% (earnings).

- Utilities: E.ON [EOAN.DE] +1.5% (earnings).

Speakers

- ECB’s Vujcic (Croatia): Economic environment leaves no room for complacency.

- RBA Gov Bullock: Markets seem 'remarkably' sanguine at the moment; Last inflation reading was too high - Fireside chat at Melbourne University Faculty of Economics & Business.

- Israel Central Bank (BOI) Gov Yaron: Next step would be to get stock market on international index.

- Ex-BOJ Gov Kuroda: Japan needs to move toward tighter fiscal, monetary policy as economy already 'in great shape'.

- Japan PM Takaichi: Closely watching FX moves with a high sense of urgency.

- Japan Dep Chief Cab Sec Ozaki: Strongly demanded early release of Japanese national detained in Iran.

- Fed's Collins (non-voter): The recent jobs data has been promising; There may be more stability in the job market amid fragility; Noting that the labor market softened last year, but "was not soft".

- Fed’s Barkin (voter): There's a clear sense that the job market has loosened; It's hard to calibrate what's going on with labor supply; Firms have very limited pricing power.

Economic data

- (EU) Euro Zone Jan Final CPI Y/Y: 1.7 % V 1.7 %e; Core Y/Y: 2.2 % V 2.2 %e.

- (CH) Swiss Feb UBS Survey Expectations: +9.8 v -4.7 prior.

- (AT) Austria Feb Manufacturing PMI: 49.4 v 47.2 prior.

- (FR) France Jan Retail Sales Y/Y: +1.2% v -1.0% prior.

- (HK) Hong Kong Jan CPI Composite Y/Y 1.1% v 1.2%e.

- (AT) Austria Jan Final CPI Y/Y: -0.7% v -0.7% prelim; M/M: 2.0% v 2.0% prelim.

- (TW) Taiwan Jan Unemployment Rate: 3.4% v 3.4%e.

- (CZ) Czech Jan PPI Industrial M/M: -0.7% v -0.1%e; Y/Y: -3.0% v -2.4%e.

- (ES) Spain Jan PPI M/M: 0.5% v +0.4% prior; Y/Y: -2.9% v -3.0% prior.

- (FR) France Feb Consumer Confidence: 91 v 90e.

- (DE) Germany Q4 Final GDP Q/Q: 0.3% v 0.3%e; Y/Y: 0.4% v 0.4%e.

- (SE) Sweden Jan PPI M/M: +2.4 v -1.1% prior; Y/Y: -2.0% v -2.7% prior.

- (NO) Norway Jan Unemployment Rate Trend (NOK): 4.5% v 4.5% prior.

- (DE) Germany Mar GfK Consumer Confidence: -24.7 v -24.2 prior.

- (JP) Japan Jan Nationwide Dept Sales Y/Y: +2.3% v -1.1% prior.

- (JP) Japan BOJ Jan Core CPI Y/Y: 1.7% v 1.9% prior.

- (HK) Hong Kong Q4 Final GDP Q/Q: 1.0% v 1.0% prelim; Y/Y: 3.8% v 3.8% prelim; 2025 GDP 3.5% v 3.5% prior.

- (IE) Ireland Feb Consumer Confidence: 65.2 v 64.7 prior.

Fixed income issuance

- India sells total INR340B vs. INR340B indicated in 3-month, 6-month and 12-month bills.

- Sweden sells total SEK8.0B vs. SEK8.0B indicated in 2032 and 2036 Bonds.

- Italy Debt Agency (Tesoro) sells €4.5B vs. €4.5B indicated in 3-month and 6-month bills.

Looking ahead

- 05:00 (EU) Euro Zone Jan Final CPI Y/Y: No est v 1.7% prelim; CPI Core Y/Y: No est v 2.2% prelim; CPI M/M: No est v -0.5% prelim.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 06:30 (BR) Brazil Jan Total Outstanding Loans (BRL): No est v 7.123T prior; Outstanding Loans M/M: No est v 1.8% prior; Personal Loan Default Rate: No est v 6.9% prior.

- 07:00 (US) MBA Mortgage Applications w/e Feb 20th: No est v +2.8% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 10:00 (MX) Mexico Q4 Current Account Balance: No est v $2.3B prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (RU) Russia Jan Industrial Production Y/Y: No est v 3.7% prior.

- 18:00 (HU) Hungary Feb Economic Sentiment: No est v -14.2 prior; Business Confidence: No est v -11.5 prior; Consumer Confidence: No est v -22 prior.

- 19:00 (NZ) New Zealand Feb ANZ Activity Outlook: No est v 51.6 prior; Business Confidence: No est v 64.1 prior.

- 19:30 (AU) Australia Q4 Private Capital Expenditure: No est v 6.4% prior.