Weekly Market Outlook

This week’s highlights comprise NVIDIA Q2 earnings report on Tuesday, the FOMC minutes on Wednesday, followed by the US weekly jobless claims on Thursday. The last business day of the week comes with a few important economic data figures too: the UK retail sales for July, and the flash PMIs of Germany, France and the UK. Hold your breath, the new week has just started!

NVIDIA Q2 Results (Tuesday)

With the recent outperformance relative to the general market, NVIDIA stocks have expectedly posted hefty gains this year. A contributing factor has been the soaring of revenue in its data processing sector, along with the rising demand for home computers, as increasingly more people work from home. Yet another reason for the outperformance could be the renewed rally on the crypto market.

The demand for NVIDIA’s A100 GPU, used by behemoths like Google, Amazon, and Microsoft for their cloud activities, has been going strong. Cloud storage is sure to be in wide use, with increasing capacity sought by all companies. The same applies for the demand for the company’s performance graphics chips, with the only shade cast by the fact that the really high prices of gaming consoles make some users back off. That is the only factor to pull back NVIDIA’s share price.

FOMC Minutes (Wednesday)

Following the FOMC meeting last month, the Federal Reserve announced an extension of the US dollar repo and swap lines until the end of March 2021 as a precaution. Although no change was made in monetary policy, the Fed chair made it clear that the efforts were to guard against possible economic deterioration. From his words, it could be deduced that the discussion was focused on the need of a fairly easy monetary policy. The forthcoming Economic Policy Symposium, to be held on August 27 and 28, will shed light on how near the Fed has come to yield curve control policy.

US Weekly Jobless Claims (Thursday)

Just a few weeks ago, this number plummeted to its lowest level since late March. The situation has changed ever since, and the concern remains for a rise in claims in the next few weeks. Number one reason for that is the increasing number of virus cases from the second half of July. To deteriorate things further, the future of the package of enhanced unemployment benefits of $600 per week is still unclear, and it is to be decided in the near future.As the latest figures were released, jobless claims fell to 963K. This was the first time this reading has come below the 1m threshold since the initial lockdown in March. There was another reduction, in continuing claims, which fell back to 15.48m and marked their lowest level since the beginning of April. In mid-August, weekly and continuing claims are surprisingly extending their downward course. This tendency could go on only if US lawmakers take action and decide on a future stimulus package.

UK July Retail Sales (Friday)

The massive decline in retail sales observed at the end of Q1 and extending in the beginning of Q2, was followed by a substantial rebound in consumer spending in May and June. Along with some weak areas, there were massive improvements not only in food sales but in DIY as well. Moreover, online shopping surged, as increasingly more non-essential stores resumed business in mid-June. As July started, restaurants, pubs, and hairdressers also reopened. The rebounding seen in May (12%) and June (13.9%) have been rather rewarding. What is remarkable is that unlike the developments in the US, UK infection rates marked a steady plateau which, together with the fairly good weather, could also modestly boost retail shopping.

Germany, France and UK August Flash PMIs (Friday)

The recent data on PMIs for Germany, France and the UK indicate economic activity is experiencing a pickup, as more and more businesses resume operation. The trend has been the most pronounced in the services sector: the one to suffer the most from lockdown measures. July marked a sharp rise in services PMI for the UK, from 47.1 in June to the current 56.5. The chancellor’s call ‘Eat out to help out’ was contagions and could bring further improvement in the country’s business activity. The situation in Germany and France were similar: Germany PMI hit 55.6, and France scored even better: 57.3.
Manufacturing has demonstrated resilience, with the PMI reading holding firmly above 50. The recent local virus outbreaks, which would mean no slackening of anti-coronavirus measures, bring uncertainty and doubts whether the PMIs for August will remain this high, or will slightly decline.