Encouraging news on AI, oil and the BoJ — but not enough

00:00:00: Hi and welcome to Swisscodes, daily market talk.

00:00:03: It's Friday, the eighteenth of September.

00:00:05: Markets found some relief throughout this week but not enough to erase their bigger risk.

00:00:11: NVIDIA revived appetite for AI and SMI conductors stocks last week yet financing and KPEX concerns persist.

00:00:18: Oil inventories are falling around the world.

00:00:20: they're falling more slowly than feared buying in the world some precious time to resolve issues But prolonged supply disruptions still keep energy inflation.

00:00:30: Then the Bank of England overhauled its quantitative tightening program yesterday, easing pressure on longer term yields while the bank of Japan delivered that twenty-five basis point hike that was so much expected by market.

00:00:43: Yet one hike may not be enough to stabilize the end and fiscal concerns won't evaporate overnight either!

00:00:54: Please keep in mind that opinions are my own and this is not financial advice.

00:01:05: So, we

00:01:07: were very busy with various headlines.

00:01:10: It started on a very hectic note to remember that news out front here.

00:01:14: AI model providers like OpenAI and Anthropic would slow down the pace of their development or models so they could make sure that robots or AI-led models wouldn't just go out of control and threaten humanity – nothing short of good science fiction movie indeed!

00:01:31: The latter hat triggered a stiff sell-off across AI enablers earlier this week.

00:01:35: Remember the slower development, the slower investment, the slow data center.

00:01:40: build out to slow chip and other raw material sales too!

00:01:44: builders to slower the revenue outlook for AI enablers.

00:01:48: So yeah, NVIDIA's Jensen Huang spent his week convincing investors and world.

00:01:52: that is not true!

00:01:53: That isn't a big risk from taking phone calls from US President on stage announcing that NVIDia sales will double next year while he did what it could to prop up hammered appetite among technology investors And he managed to pull his company shares more than two-and-a half percent in yesterdays trading session.

00:02:14: Now on that front, to give some context the company CFA had said last month remember that NVIDIA's revenue would increase by seventy percent next year and That number will be a hundred percent if there were no supply constraints.

00:02:27: Remember that comment?

00:02:29: Well it just comes on top of that.

00:02:30: So either supply constraint evaporator or nvidia who has been beating his own forecast systematically since the beginning of two thousand twenty three Which is an excellent way to manage investor expectations decided to give itself a smaller cushion.

00:02:48: The week has seen appetite recover for semi-conductors, the news that SK Hynex is in talks Three percent in yesterday's trading session, while the Korean Cosby Index rich in memory chip makers is up by two and a half percent at.

00:03:15: Broadly speaking, the chip makers and AI enablers have been given back gains from their summer peak.

00:03:21: If you leave the apocalyptic scenarios aside for a minute The need to form massive capital investments such as capital intensive industry Evaporating free cash flow levels of big technology companies who are biggest clients.

00:03:33: The increasing need for financing by stock and bond sales.

00:03:36: at times yields rising interest rates from major central banks are projected Higher, obviously do remain major headaches that could eventually limit the upside potential to recover for these companies.

00:03:51: So far, the strength and earnings growth could counterweight part of ugly macroeconomic and geopolitical backdrop?

00:03:57: The question today is how long Growth companies could outperform the rest, I guess the yields will decide.

00:04:04: Since the beginning of the Iran War we have seen the technology sector attract capital actually.

00:04:09: but if high energy prices remain a primary concern and transportation global yields higher We can see capital flow into energy and broader value.

00:04:19: Now, the good news this morning is that oil prices may have topped for the moment.

00:04:23: U.S.

00:04:23: crude is pulling down on the third consecutive session of this morning on easing Middle-E supply constraints.

00:04:39: I'm afraid here that if we don't get a sustainable decline in oil prices, all the refined product prices will remain elevated and the latter will continue to maintain inflation expectations at uncomfortable levels around like constraints will become a growing headache also provided obviously that the world oil reserves and strategic reserves have been falling.

00:05:19: In other words, the clock is ticking louder.

00:05:21: Louder yes but encouraging news as that JP Morgan updated his outlook for global oil inventories.

00:05:27: ladies & gentlemen Back in April is no resolution scenario which assumed that flows through the Strait of Hormes would remain close to zero, which is the case today.

00:05:38: While projected that global oil inventories will fall into operational stress level around seven point six billion barrels by month of May before approaching the operational floor of about six point eight billion barrels shortly afterwards near September.

00:05:56: That was their projection.

00:05:57: Today, inventories have been falling much more slowly than feared by that report and they remain around seven point nine billion barrels.

00:06:06: That is comfortably above the operational stress level.

00:06:10: Now that buys the world some precious time to find a solution in Ukraine and in the Middle East, but it's probably not enough to rewrote and restore energy supplies to pre-war levels if the war is dragged on obviously so.

00:06:23: In this context, risk of oil prices remain tilted To the upside.

00:06:27: It is almost impossible to make precise workouts here.

00:06:30: Ultimately there are about geopolitics.

00:06:32: Oil companies remaining my view better hedge against actual energy supply risk then volatile spot energy prices.

00:06:40: Speaking of the latter, The Bank Of England kept its policy rate unchanged in yesterday's decision pointing at inflation risk.

00:06:48: It also echoed that inflation depends on energy prices, which in turn depend.

00:07:08: But that wasn't the highlight of yesterday's meeting.

00:07:10: Happily, what really made a difference yesterday was the Bank Of England announcement that it scrapping plans to sell long-dated guilds to revise its quantitative tightening program.

00:07:22: Bond investors celebrated the news by buying longer maturity yields and let her pull the ten and thirty year yield sharply lower in yesterday's trading session.

00:07:32: What a blast!

00:07:33: Better yet global yields ease along with oil prices day and I believe that the Federal Reserve's decision earlier this week to hike interest rates.

00:07:43: defying the White House to defend its inflation objective, also help pouring some cold water on the heated bond markets.

00:07:51: And finally today The Bank of Japan all saw delivered a highly expected and highly wanted twenty-five basis point hype.

00:07:58: This was second rate hike in three months as well faster than one rate hike every six month's pace.

00:08:04: But wait!

00:08:05: The knee jerk reaction was a swift selloff In Japanese yen As two officials dissented clear.

00:08:13: One rate hike is not enough, more is needed to bring the bank of Japan rates just somewhere neutral.

00:08:19: so what BOJ governor Ueda will say today matters more than the rate hike itself but you could discuss about that in the comments below as Mr Ueda won't be speaking before this episode comes out, but how weird that season inflation is evolving and how he sees the fiscal concerns.

00:08:36: fitting in this context will be important for the dollar yen's next direction.

00:08:40: As I said yesterday Japan may need to raise its rates until it reaches one half-to two percent range of the nominal monetary policy rate to reach a neutral zone.

00:08:51: That means at least ONE AND UP TO THREE RATE HIGHTS IN THE COMING QUARTERS FROM THE BANK OF JAPAN.

00:08:56: If traders believe that The Bank Of Japan can't deliver that be hard to keep the dollar from bouncing back too and above that one hundred sixty psychological mark.

00:09:08: So let's see what Oedo says.

00:09:09: but this is all for This Week.

00:09:11: I'm Yipega Oskar Deshkriya and thank you for joining me.

00:09:14: And Thank You For All Your Beautiful And Supportive Comments!

00:09:18: I hope this episode of Market Talk has been helpful, and it's been insightful to you.

00:09:23: so please do not hesitate to leave your comments, reactions & questions below.

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00:09:48: So I will meet again next week, until then good day trading.

00:09:53: have a lovely

00:10:09: weekend!