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The Eurozone’s Long-Lost Mojo

Market Update

25.11.2024

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What happened last week?

Global

  • Nvidia delivered big earnings, but without the fireworks investors hoped for.
  • The US dollar stumbled, opening the door for a new gold bounce.
  • The FTSE 100 heads for biggest weekly Jump in six months.

    Why It Matters

    Nvidia’s earnings were hyped as the year's big showstopper – bigger than the Federal Reserve’s December meeting, some said. While the AI darling did deliver, the fireworks weren’t quite as dazzling as investors had come to expect. Even with profits doubling from last year, the gains felt like a buzzkill to a market hooked on exponential growth. Two worries stood out for investors: Nvidia’s new Blackwell GPUs might not juice the bottom line as much as hoped, and the company might be leaning too heavily on a handful of big clients (read: cloud providers).

    The US dollar’s been on a tear since September, fuelled by expectations of higher tariffs and market bets that a new government agenda could supercharge the US economy that would push inflation higher, and keep the Fed from cutting rates. But last week, the rally took a breather as folks started questioning whether the surge was overdone.

    That pause gave commodities some breathing room – especially gold, which has struggled under the weight of the strong dollar – which makes it more expensive for foreign buyers.

    The FTSE 100 is on track for its biggest weekly gain in over six months, propelled by a weaker pound that benefits UK-listed, dollar-earning multinationals. A fall in the pound, sparked by reduced business activity and retail sales, has pushed it to its lowest level since May, boosting companies like AstraZeneca and Unilever that generate significant dollar-based revenues. Their stocks have risen, although the banking sector hasn't fared as well: Barclays, HSBC, and Lloyds saw declines amid poor domestic business signals. Meanwhile, traders expect the Bank of England to keep interest rates steady next month, with potential cuts on the horizon. The FTSE 250 also rose, gaining 1% and signalling modest overall increases. Games Workshop made headlines with a record-breaking 16% surge, driven by strong half-year projections.

    The Focus This Week: The Eurozone’s Long-Lost Mojo

    European markets have been having a tough time keeping up with Wall Street. While the S&P 500 has already posted 25% gains this year, the Eurostoxx is barely in the green – and that’s the widest performance gap on record. In fact, European stocks are trading now at one of the biggest discounts ever, compared to US ones – even accounting for sector differences – and that’s a pretty clear sign of where investors’ heads are at.

    There are some pretty big reasons why: the bloc’s biggest innovation is making more rules, not building the next Nvidia. It’s got a war on its doorstep, the US threatening tariffs, and a slowdown in China that’s hammering its exports. Also, Europe still hasn’t cracked its energy crisis. But let’s be real – the biggest problem for its stocks right now is that the region’s economy is running on fumes.

    Unfortunately, a turnaround isn’t likely to be right around the corner. Forward-looking indicators like new orders are still dropping while closely tracked business surveys show activity shrinking in both the manufacturing and services sectors. That’s a shame because with Wall Street taking a moment to catch its breath after a tech-fuelled bender, Europe might finally have a shot at closing at least some of the gap.

    With expectations as low as they are in Europe, even a small positive surprise could lift spirits. Next week’s business and consumer confidence data probably won’t blow anyone away, but “less bad” might be enough to steady the ship. If inflation plays ball and stays below the central bank’s target, that could pave the way for more aggressive interest rate cuts, which could give the economy a much-needed boost. That just might buy enough time for some longer-term positives to kick in. Of course, that’s a lot of “ifs”...

    The Week Ahead

    • Monday:Germany business sentiment (November). Earnings: Zoom.
    • Tuesday: US consumer confidence (November), US new home sales(October), Federal Reserve meeting minutes. Earnings: CrowdStrike, HP.
    • Wednesday: Germany consumer confidence (December), US durable goods orders (October), US personal income and spending (October), US economic growth revision (third quarter), US core PCE (October).
    • Thursday: Japan inflation (November), Eurozone consumer confidence (November), Germany inflation (November).
    • Friday: China PMIs (November), Japan consumer confidence (November), Eurozone inflation (November).

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