The week ahead: Powell stumps the US stock rally as Bitcoin surges, as we wait Nvidia earnings, UK CPI

The mood music is shifting for the Trump trade. Stocks fell sharply at the end of last week, led by big tech. The S&P 500 was down by more than 2% last week, its weakest performance in 2 months, while the Nasdaq was lower by 3%. The market has now given back half of the post-Trump election win gains. As animal spirits calm down, the focus is shifting to the implication of Trump’s expected economic plans, including tax cuts and the potential to reignite inflation. Some of the weakest US stock performers last week included Moderna and AbbVie, the US pharma giants, who could be hit hard by Trump’s pick for Health Secretary, Robert Kennedy Jnr, who is a well-known anti vaxxer. Trump continues to have a huge influence on financial markets, even before he has announced his pick for Treasury Secretary.

As we start a new week, Bitcoin is the chief beneficiary of the Trump trade. Its outsize gains have continued, even as US stocks have faltered. The evolution of the Trump trade includes weaker mid-cap US stocks, weaker tech stocks, and a surging dollar. At the start of the trading week, GBP/USD is still trading below $1.2650, while EUR/USD is currently trading just below $1.0550. We will be watching to see if enthusiasm for the dollar slips now that investors are starting to scrutinize what a Trump presidency will look like in reality.  

The FX outlook

USD/JPY experienced a sharp reversal on Friday, as the yen clawed back some losses. However, the recovery rally back to $154.50 may not be sustained after the Bank of Japan governor failed to give a clear signal that interest rates will rise next month. Governor Ueda’s speech on Monday, reiterated that the BOJ remains firmly data dependent and he did not give forward guidance. Ultimately this could limit JPY upside, as it is his last press conference before the December rate meeting. Ueda’s cautious tone contrasts with the more forthright Jerome Powell. When they meet in December, the market is still digesting the prospect of a near-term hawkish pivot from the Federal Reserve. There is now a 58% chance of a rate cut from the Fed next month, this is down from an 82% chance before last week’s CPI report. The US dollar’s yield differential is boosting the medium-term prospects for the dollar, and there could be further declines for the pound, the euro, and the yen. Unsurprisingly, the dollar was the best performer in the G10 FX space last week and has made gains in 7 consecutive weeks. However, will the market take a breather this week, and follow stocks lower?  The dollar is making strong gains vs. EM currencies. While this could boost EM exports in the short term, weaker currencies are unlikely to have a long-term economic impact because of Trump’s disruptive policy agenda, which includes tariffs and an ‘America First’ stance towards US manufacturing.

UK not benefitting from potential Trump favouritism yet

As the dollar surges, the world’s equity markets are falling in line with US stocks, as stock traders focus on the economic reality of a Trump presidency combined with a slower pace of interest rate cuts. Although the UK is expected to be more protected from the wrath of Trump, this has not benefited UK stocks or the pound yet. The FTSE 100 underperformed the Eurostoxx 50 index last week.

China prepared to retaliate if Trump gets tough on tariffs

There are two key geopolitical considerations at the start of this week. President Xi met President Biden at the weekend and said that he would be willing to work with President Trump. However, he caveated this with some red lines, including any political interference, or a spread of democracy in China. Another red line is independence for Taiwan, and the final one is anything that undermines the Chinese economy. The final point most likely refers to tariffs, which could fall on deaf ears in Washington. However, it suggests that there is genuine concern in China about what a second Trump term would mean, although it is likely that if Trump does proceed with tariffs on Chinese goods, they will respond aggressively. This makes for an interesting back drop ahead of this week’s G20 meeting.

The second event is that the US has given Ukraine the green light to retaliate against Russia, after Russia launched multiple strikes on Ukraine at the weekend. Trump has tried to position himself as a peace maker between Russia and Ukraine, however this move by the outgoing Biden administration could limit the effectiveness of Trump‘s efforts. Oil is up a touch at the start of the week, but Brent crude oil is still hovering around $71.30.

Can Nvidia boost the Magnificent Seven?

Nvidia will deliver its latest quarterly results on Wednesday night. The market is expecting revenues of $33.20bn, and net income of $18.55bn. This is a significant uplift from the $30.04bn recorded in the prior quarter, and $16.95bn for net income. Nvidia is expected to get more profitable, earnings per share is expected to rise to $0.74 up from $0.68 in the previous quarter.

Analysts have generally upgraded their forecasts for Nvidia’s results in the last 4-weeks, as demand for Nvidia’s Hopper graphics processing unit and architecture system, is expected to see demand soar, even though there have been delays with Nvidia’s newest Blackwell chip. Demand for Nvidia’s Hopper product is likely to protect revenues for last quarter, however, the company will need to give an upbeat outlook on Blackwell chips for this stock to recover after dropping nearly 5% last week.

Nvidia is still the world’s largest company, and forecasts for this quarter will be as important to the revenue and profit data released on Tuesday. It is worth noting that the implied move 1-day after quarterly earnings results for Nvidia’s stock price is a whopping 8.78%. Thus, expect volatility in the tech giants later this week. So far, there has been some mixed results for the global chip markers and the companies closely linked to them, for example ASML. However, Nvidia has such a stranglehold on the GPU market, that it is hard to extrapolate from smaller companies in the sector what this means for Nvidia’s earnings.

Economic data watch

Now that central bankers are once again key for some market moves, economic data is in focus. In the UK, CPI will be the focus on Wednesday, with public finances on Thursday and retail sales on Friday. UK inflation data is the most important economic data release this week. The CPI report is expected to show that inflation picked up last month. The annual headline rate is expected to rise to 2.2% from 1.7%, the core rate is expected to fall a notch to 3.1% from 3.2%, and service sector prices are expected to remain stable at 4.8%.

UK CPI in focus

Inflation in the UK is still expected to come in below the BOE forecast, however, the risks are to the upside. Energy bills are expected to have risen by 9.5% last month compared to a year earlier. While energy prices are rising, service sector inflation, or domestic inflation, is expected to slow from here. Overall, we do not think that this week’s data will shift the dial for the BOE. Although energy prices are expected to rise sharply, this is still due to the energy shock from the past, when Russia first invaded Ukraine. Crucially for the BOE, no new sources of inflation are expected to develop. In our view, a rate cut is unlikely before the next BOE Monetary Policy Report is released in February. However, we still expect the BOE to continue to cut rates at a moderate pace. Although the UK is expected to have higher rates than the US by the end of 2025, If the second Trump presidency enacts inflationary economic policies, then this could lead to a recalibration in US interest rate expectations.

A slowdown in housing, could point to lower inflation down the line

In the US, the focus is likely to be on housing data. After a stronger reading for inflation, the US housing market could show signs of weakening. Housing starts are expected to have fallen sharply last month, and the NAHB housing index is expected to fall to 42 in November, from 43, which is a sign that Q4 is a tough month for the housing sector. A weak reading for housing data this week could also lead to weakening shelter prices, a key component of US inflation, in the coming months.

November PMI surveys to give us important signals about Q4 growth

In Europe, we get the first reading of PMI surveys for November. This will be a timely way to assess the Eurozone economy as we move through Q4. PMI surveys are also released for the UK and the US. The market expects the indices to remain stable in Europe, with weak manufacturing and so/so service sector readings. The UK is expected to see the manufacturing index to pop back up into expansionary territory, and the US readings are also expected to tick higher for the service sector. However, the euphoria that met Trump’s election victory and the ensuing stock market rally, could see the US’s service sector index rise by more than expected.

Stocks and Bitcoin watch

At the start of a new week, stock futures are mostly unchanged, which may suggest that the stock market is sleeping off its Trump hangover for now. If there are any signs from the Trump administration this week that tariffs could be watered down, then the party for US stocks is likely to re-start.

Bitcoin surges to fresh record

Bitcoin and crypto are a key plank of the Trump trade, and Bitcoin is up by approx. $3000 at the start of this week’s trading It has risen to a fresh all time high above $92,000 after Trump’s new Health secretary RFK jnr said that Bitcoin is the ‘currency of freedom’. The question now is, can the crypto bulls send Bitcoin to $100,000 before Trump’s inauguration?