• US February ISM manufacturing 47.8 vs 49.5 expected
• US January construction spending -0.2% vs +0.2% expected
• US February UMich final consumer sentiment 76.9 vs 79.6 expected
• US Feburary S&P Global final manfacturing PMI 52.2 vs 51.5 prelim
• Fed’s Barkin: Yesterday was a high inflation report
• Fed’s Kugler: Signs firms are adjusting prices slower, bolstering disinflation confidence
• Fed’s Goolsbee: Housing inflation is the thing that’s really been weird
• The Fed’s Daly: No comments on monetary policy
• Comments from Waller and Logan focus on balance sheet
• Canada February S&P Global manufacturing PMI 49.7 vs 48.3 prior
• BOE’s Pill: My baseline is that the time for cutting rates is some ways off
• Martin Schlegel a likely candidate to replace Swiss National Bank’s Jordan
• Goldman Sachs pushes back first ECB rate cut call to June from April previously

Markets:

• Gold up $40 to $2083
• US 10-year yields down 6.8 bps to 4.18%
• WTI crude oil up $1.51 to $79.78
• S&P 500 up 0.8%, Nasdaq up 1.1%
• Bitcoin up 2.1% to $62,750
• AUD leads, JPY lags

Happy Friday. It certainly was for the market as a trio of soft second-tier US economic data releases combined to add a dose of dovishness to the market and send the Nasdaq above the 2021 high.

Before the data, some worry was creeping into the market and the US dollar was bid. Comments from Barkin struck a hawkish note and with Waller on the schedule after him, there was some worry about a hawkish turn. Instead, the ISM manufacturing, construction spending and final UMich numbers were all soft and the dollar sank. Then Waller limited his comments to the balance sheet and Goolsbee stayed dovish.

US 10-year Treasury yields fell 12 bps from the highs and broke the important 4.20% level. With that, I would have expect more US dollar selling but that might have been capped by turn-of-the-calendar or US equity buying. The euro and pound managed to recoup yesterday’s declines while the Australian dollar edged modestly above yesterday’s highs before stalling.

USD/JPY declined after the data and finished the week just above 150.00 in what’s going to be an intriguing month for the pair.

Gold closed at the highest level on record, at least spot gold did (futures were close). Oil got above $80 only to finish just below in what was a strong day for commodities.

Bitcoin was lackluster early despite the Nasdaq bid but caught up late to finish within striking distance of the highs of the week. Eyes will be on BTC on the weekend, where it’s generally languished since the ETFs emerged.

This article was written by Adam Button at www.forexlive.com.

Looking at the numbers, I’m surprised how quietly the Russell put on some solid gains and broke out.

On the day:

• S&P 500 +0.8%
• Nasdaq +1.1%
• DJIA -0.1%
• Russell 2000 +0.9%
• Toronto S&P TSX Comp +0.9%

On the week:

• S&P 500 +0.95%
• Nasdaq +1.7%
• DJIA -0.1%
• Russell 2000 +2.8%
• Toronto S&P TSX Comp +0.6%

This article was written by Adam Button at www.forexlive.com.

No hint at something more hawkish here:

• ‚Cautiously optimistic‘ inflation will fall without job market damage
• Fed policy actions have helped bring inflation pressures down, helped anchor inflation expectations
• economy appears to have dodged a wage-price spiral
• Inflation pressures have cooled significantly
• Fed has faced less of a trade off between inflation and jobs
• Workers and employers are better at finding each other now
• Goods and labor shortages have declined

There’s not a hawkish word here despite the higher inflation data in January. I was worried this morning after Barkin that we could see something of a coordinated push from Fed officials to warn that rates could stay higher for longer. Instead we get this and yields have crumbled.

This article was written by Adam Button at www.forexlive.com.

Since October 27, the S&P 500 has rallied 24.7%.

It’s an incredible achievement as the world’s largest stock market (by far) increases its value by one quarter. Nvidia alone was 33% of the gain, but that’s another story.

What stands out about this rally for me is the steadiness of it. There’s hardly a down day and when there is, it’s modest and that’s despite the market pricing out around 80 bps in cuts for this year. It’s a truly astonishing rally and we’re only just stepping into a strong seasonal period.

This article was written by Adam Button at www.forexlive.com.

Nvidia is already the third-most-valuable company on the planet, trailing only Microsoft and Apple. It’s the undisputed leader in the production of chips essential for powering the generative artificial intelligence revolution.

Companies are throwing as much money as possible at Nvidia in order to stockpile chips in datacenters that will churn out unique images, videos, text and other content in the years ahead.

Shares of the company have surged by 65% year-to-date, just two months into the year. The gain in Nvidia shares alone this year has powered 32% of the gain in the S&P 500.

It’s a stunning achievement but for all that, shares aren’t that expensive. They’re trading at 32x forecast earnings in the next 12 months and have grown earnings at a pace never seen before at any company (in dollar terms at least). For context, companies during the dot-com era were trading at 60-100x earnings; so on that alone, shares could more than double.

What could really propel its growth further?

Looking at the chart, it’s incredible (particularly as a guy who owned shares in 2011, but hasn’t since then unfortunately). It’s tempting to think that it will all come crashing down. The company is running with +75% margins right now and they don’t even manufacture their own chips. Surely someone will catch up by the end of the decade with something at least comperable to what they’re offering, right? The long history of chips shows that it’s more of a commoditized product than a moat.

Maybe. But let’s set that all aside for a minute.

Bubbles happen because of mass psychology. A mania mindset emerges as people come to grips with a world-changing idea. All the pieces are already in place for that with Nvidia and its rise from $150 at the dawn of ChatGPT to $818 now captures much of that.

But is 5x really a bubble in the company that’s clearly the leader in AI? Especially when actual earnings have matched the growth rate of the stock?

I would argue not. This could be just the beginning. Mass psychology is hard to predict but here’s the line of thinking that could lead Nvidia much higher:

Virtually all invention in the future will be via AI

Human invention is a relic. Already we’ve seen phamaceuticals that were developed via AI and it’s just the tip of the iceberg. With good data (and that might not be easy to find), generative AI can unlock the molecular mysteries of the human body and how we can enhance and heal ourselves in ways never before considered. AI is going to cure cancer and so much more.

That’s just in one field. It could do the same in materials, design, engineering, accounting, programming and many more. Within that, whoever has the largest army of chips owns those inventions. It’s the key to unlocking the future and it will be winner-take-all.

Moreover, the stakes may even be higher for governments as generative AI is tasked with weapons design, including biological, chemical and nuclear weapons along with defenses against those things. What’s that worth to the US, China, Russia, Iran and North Korea? It will become a national security priority to amass the largest bank of AI chips possible, with no cost being too high.

Finally, it will be AI designing the next generation of computer chips. Nvidia’s main task will be using its own chips to create the next generation of chips and so on. It will also use that power to design custom chips for clients, something it’s already working on.

“The chip industry is the foundation of nearly every other industry in the world,” said Jensen Huang, founder and CEO of Nvidia.

…

Now do I believe all of that will come to pass? I can certainly see some holes in that argument. Do I think that enough people will believe in that idea to create perhaps the biggest single-stock bubble in history? Enough to make Nvidia the most-valuable company in the world (it would only need to rise 50% from here)?

I think that very soon people will be screaming that same argument as Nvidia crosses $1000/share and beyond.

This article was written by Adam Button at www.forexlive.com.

USD

• The Fed left interest rates unchanged as
  expected at the last meeting and dropped the tightening bias in the statement.
• The US PCE came
  in line with expectations.
• The US Jobless Claims missed
  expectations although the data is still in the recent ranges.
• The latest US PMIs
  increased further from the prior month with the Manufacturing PMI beating
  expectations and the Services PMI missing.
• The US Consumer
  Confidence missed expectations across the board.
• The market expects the first rate cut in June.

JPY

• The BoJ kept its monetary policy unchanged as expected at the last meeting with
  interest rates at -0.10% and the 10 year JGB yield target at 0% with 1% as a
  reference cap.
• The Japanese CPI beat expectations although all
  measures eased further from the prior readings.
• The latest Unemployment Rate remained unchanged hovering around
  cycle lows.
• The Japanese PMIs improved for both the Manufacturing
  and Services measures although the former remains in contractionary territory.
• The Japanese wage data missed expectations again recently
  although there was a pick up from the prior reading.
• The market expects the BoJ to hike
  rates in Q2.

USDJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see
that USDJPY yesterday sold off following some hawkish comments from BoJ’s
Takata. The buyers stepped in around the red 21 moving average as the
big picture remained unchanged. In fact, even if the BoJ hikes, it’s unlikely
to embark on a real tightening cycle given the falling inflation rate. The
target for the buyers remains the cycle high at 151.90.

USDJPY
Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see more closely the
yesterday’s selloff with the latest leg lower caused by the US data where the
PCE came in line with expectations and the US Jobless Claims missed forecasts.
The buyers will now need the price to break above the resistance around
the 150.89 level to increase the bullish bets into the cycle high. The sellers,
on the other hand, will likely step in around the resistance with a defined
risk above it to position for a drop into new lows.

USDJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
latest leg lower diverged with
the MACD which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. The buyers took it as an opportunity to fade the selloff and
position for a rally back into the highs. We now have a support zone around the
150.10 level where we can also find the red 21 moving average for confluence. If we
were to get a pullback, that’s where we can expect the buyers to step in again
for another rally into the highs. The sellers, on the other hand, will want to
see the price breaking lower to pile in and target new lows.

Upcoming Events

Today the only notable event will be the release of
the US ISM Manufacturing PMI.

This article was written by FL Contributors at www.forexlive.com.

It’s been a choppy one for the bond market as 10-year yields in the US went up as high as 4.28% earlier only to fall back to 4.22% on the day now. The overall price action is still not really helping the bigger picture outlook, as outlined earlier here.

But amid the drop in yields, we are seeing USD/JPY pare back some of its advance to 150.30-40 levels now from around 150.60 earlier. Meanwhile, gold is ripping higher and up 0.5% to $2,053 on the day. The precious metal is threatening a break of key resistance highlighted here.

As for the dollar, it continues to sit in a more tepid spot as major currencies are still not showing much appetite overall. EUR/USD is flat at 1.0806 with GBP/USD also little changed around 1.2628 currently.

This article was written by Justin Low at www.forexlive.com.

• Prior 6.4%; revised to 6.5%

The jobless rate in the euro area continues to reaffirm a tight labour market. For some context, this figure was 6.6% in January 2023 so it tells the story that employment conditions are still holding up well overall in the region.

This article was written by Justin Low at www.forexlive.com.

• Prior +2.8%
• Core CPI +3.1% vs +2.9% y/y expected
• Prior +3.3%

The standout here is that core annual inflation continues to remain stubbornly high. Even if it did fall from 3.3% in January to 3.1% in February, it reaffirms that the challenge for the ECB to get this to 2% might be much tougher in the months ahead. The euro has nudged up slightly on the data but this shouldn’t change the market’s view of a June rate cut – at least for now.

This article was written by Justin Low at www.forexlive.com.

• Prior 47.0

The headline reading is a 10-month high but UK manufacturing activity continues to observe a downturn at least for now. Both output and new orders continue to decline while the Red Sea crisis is leading to supply disruptions. This reaffirms a more challenging environment, even with some improvements seen as of late. S&P Global notes that:

“UK manufacturers faced challenging circumstances
in February, as the ongoing impact of the Red Sea crisis
delayed raw material deliveries, inflated purchase prices
and impacted production capabilities. There were also
knock-on effects for demand, as new export orders were
hit by both supply disruptions and higher shipping costs.
Production volumes subsequently contracted for the
twelfth successive month while total new orders fell at the
sharpest rate since October.

“The impacts were felt particularly hard on the price and
supply fronts. Input cost inflation hit an 11-month high,
leading to a further increase in selling prices. Average
supplier lead times meanwhile lengthened to the greatest
extent since mid-2022. Several manufacturers noted that
they faced the difficult choice between accepting delays
from re-routed shipping or facing the prospect of paying
higher prices to source from closer to home. This comes at
a time of already heightened cost caution at manufacturers
in response to weak demand, as highlighted by further cuts
to employment, purchasing and inventories in February.

“Although the supply impact and effect of prices is
muted by standards seen at the height of the pandemic,
any upward pressure on inflation will be a concern to
policymakers and may add to calls that it is too early to be
confident on the timing of interest rate cuts.”

This article was written by Justin Low at www.forexlive.com.