ASX 200 to fall, S&P 500 ticks higher despite Nvidia weakness + Lithium prices dip

ASX 200 futures are trading 12 points lower, down 0.17% as of 8:20 am AEST.

---

S&P 500 SESSION CHART

MARKETS

• S&P 500 finished higher in a relatively rangebound session ahead of the US Thanksgiving Day holiday
• Nasdaq closed higher but off best levels due to weakness from heavyweights Nvidia (-2.5%) and Tesla (-2.9%)
• Volatile session for oil prices, down 1.4% from a session low of -5.1% after US crude oil inventories increased more than expected
• Market narrative remains relatively unchanged: Seasonality tailwinds, peak Fed and falling yields, strong earnings from Nvidia (but expectations and positioning elevated into the result), sustained CTA buying
• Hedge funds short sellers suffer an estimated $43bn of losses in sharp rally in recent days (FT)
• RBC joins BofA in expectations for S&P 500 to reach 5,000 in 2024 (Yahoo)
• OPEC delays November 26-30 policy meeting without providing a reason (CNBC)
• Saudis in difficult talks with other members about their production levels (Bloomberg)
• Goldman Sachs says OPEC will use its pricing power to keep prices between US$80-100 a barrel and sees a 35% likelihood of deeper production cuts

STOCKS

• Nvidia's revenue guidance tops expectations as AI chip boom powers on (Bloomberg)
• Sam Altman returns to OpenAI as CEO (Reuters)
• Bezos expected to aggressively sell more shares of Amazon (CNBC)
• John Deere says higher borrowing costs will hit demand, guides to weaker-than-expected 2024 profit outlook (Reuters)
• HP forecasts downbeat first quarter profit amid slow PC market recovery (Reuters)

CENTRAL BANKS

• Fed minutes stress careful approach, does not rule out more hikes (Reuters)
• BOJ reduces JGB purchases at its regular buying operations, yields rise (Reuters)
• ECB's Lagarde say can't declare victory on inflation until 2% goal met (Bloomberg)
• ECB's Schnabel says disinflation process projected to slow (Bloomberg)
• RBA's Bullock says board seeks to cool demand, maintain employment (Bloomberg)

GEOPOLITICS

• Israel agrees to four-day truce with Hamas, 50 hostages to be released (FT)
• Biden's diplomatic breakthrough on Israeli hostage release after weeks of talks brokered by Qatar, US and Egypt (FT)
• Russian parliament approves spending bill to allocate more on defense than social services for first time in decades (AP)

CHINA

• Chinese government advisers to seek 2024 GDP growth target 4.5% to 5.5% (Reuters)
• China state bank purchases said to be accelerating, yuan gains (Reuters)
• Evergrande chairman's mansions seized by company creditor (Bloomberg)
• Sunac China project secures loan from government-backed asset manager (Bloomberg)

ECONOMY

• US short-term inflation expectations climbed to a 7-month high in Nov (Bloomberg)
• US weekly jobless claims fall more than expected (Reuters)
• US durable goods orders fall on weakness in transportation equipment (Reuters)
• Japan downgrades economic assessment for first time in 10 months (Reuters)
  
  

Nvidia Crushes Earnings, Shares Fall on China Trade Concerns

Nvidia shares slipped around 2% after its forecasts failed to meet sky-high expectations.

Third quarter results summary:

• Revenue up 205% to US$18.1bn – Beat the US$16.1bn expected
• Data centre revenues up 278% to US$14.5bn – Beat the US$12.8bn expected
• Gross margins up 1,883 bps to 75.0% – Beat the 72.5% expected
• EPS up 593% to $4.02 – Beat the $3.37 expected
• Free cash flow up 5,202% to US$7.0bn – Missed the US$7.1bn expected

Nvidia expects fourth quarter revenues to rise 230% year-on-year to US$20.0bn, which was ahead of the US$17.8bn expected by analysts.

Key management quotes and outlook commentary:

• "NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off" – CEO Jensen Huang
• "Our sales to China and other affected destinations, derived from products that are now subject to licensing requirements, have consistently contributed 20-25% of Data Center revenue. We expect that our sales to these destinations will decline significantly in Q4 FY 24..." – CFO Colette Kress
• "Export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term.” – CFO Colette Kress

Brokers remained upbeat and most upgraded their share price targets:

• Bank of America: Reiterated a Buy and raised its target price to $700. “We think the stock could go through some near-term churn, but we expect fundamental strength to help it outperform.”
• Goldman Sachs: Reiterated Buy and revised its target price to $625 ($605 prior). “We increase our 2023-25 revenue and non-GAAP EPS estimates, on average, by 11% and 12% respectively.”

A Buying Spree for US Stocks

Commodity trading advisers (CTAs), which are known for using momentum-driven strategies in futures markets, purchased approximately US$70bn in US equities in the past two weeks.

CTA positioning is currently far from extreme, in fact it would need to add an extra ~US$30bn or so to reach 'extreme' levels. This suggests there is a little more wiggle room for upside before positioning becomes an issue.

Lithium Prices are Spiraling Lower