Nvidia bounces back as Deliveroo and Euro in focus

Nvidia’s shares staged a decent rally on Tuesday and rose more than 6%, after its $430bn rout in recent days. Nvidia and Arm were the top performers on the Nasdaq 100 yesterday, and European stocks moved higher on Wednesday as global risk sentiment gets a boost. The AI boom is still on, the $430bn rout on Nvidia’s stock was a blip and it was not triggered by any fundamental factors. However, that leads to the question, what would happen if there were a fundamental reason to sell Nvidia, how far would that push the stock lower?

Deliveroo, the next M&A target

For now, market sentiment remains upbeat, even as we move towards election risk in France and the UK. Deliveroo is one of the top performers in the UK market on Wednesday, after reports that US meal delivery firm Doordash had recently shown an interest in buying Deliveroo. This adds to the UK’s M&A theme, which is starting to drive interest into the UK market. However, as we move towards the end of the first half of this year, the FTSE 100 is still lagging behind the S&P 500 and the Eurostoxx Index YTD, and we still need to see UK M&A activity boost the UK index and help the FTSE 100 to play catch up with its global peers.

S&P 500, Eurostoxx 50 and FTSE 100 indices, normalised YTD

Source: XTB and Bloomberg 

Doordash does not appear to be making a firm offer for Deliveroo, as the valuation is too high. However, there is hope that another offer could be waiting in the wings. But is that realistic with its current metrics? It is worth noting that Deliveroo has a forward 12-month P/E ratio of more than 300, which suggests a rich valuation. It is expected to report Q2 revenues of £529.5mn, and operating profit of £199mn and we shall have to see if Doordash or another food delivery company is spurred to make an offer after Deliveroo’s Q2 results are out of the way.

Oil gets a boost from Barclays CEO

The focus so far this week has been on the stock market, however, commodities are also worth watching. The oil price is higher this morning, and Brent crude is trading at $85.47, even though it is expected that crude stockpiles rose in the US last week. However, comments from the Barclays CEO that the world cannot go ‘cold turkey’ on oil, and instead take a glide path towards net zero, may add some upward pressure to the oil price. It is also a counter argument to the pressure on the financial community to ditch oil immediately. Ditching oil does not seem like a realistic option in the current environment. Although renewables like solar energy are surging in demand, for the medium term, hydrocarbons may see demand rise alongside renewables for the foreseeable, as energy security remains key. The energy and materials sectors are the top performers on the FTSE 100 so far today and are both higher by 0.5% so far on Wednesday.

Will US home sales data weigh further on Copper?

Elsewhere, stock markets are making broad gains, yet the copper price is continuing to fall. The copper price can be a proxy for economic growth, yet the coper price has fallen 5% in June, on the back of weakness in China and concerns about US growth, which are not reflected in the main US stock indices. US home sales data later Wednesday should be watched closely for signs of weakening demand in the housing market, after new housing permits and construction fell in May. There are also rising inventories of homes for sale in the US, which suggests a material weakness in the US housing market. While the property disaster in China is weighing on the commodity space, concerns about the US are also starting to bite when it comes to the price of copper and other industrial metals like iron ore.

Rate cut hopes weigh on the Euro

ECB member Ollie Rehn, said on Wednesday morning that interest rates in the Eurozone could see two more rate cuts this year, and said that the terminal rate for the ECB could be between 2.25-2.5%. Rehn’s comments are worth watching closely, since he has been explicitly dovish, yet he is considered a neutral member of the ECB. Rehn justified his comments by saying that while the ECB needs to ensure that inflation falls back to 2%, they cannot dampen economic growth to do so. Ollie Rehn, who was instrumental to helping Greece during the sovereign debt crisis more than a decade ago, brushed off concerns about French bond yields, saying that he does not see disorderly bond market dynamics. The French and German 10-year yield spread, is elevated, however, it has backed away from the critical 80 basis point level, and has moved lower after Rehn’s comments, even though it looks like the National Rally party will win and could form the next French government. His comments are also weighing on the euro, and EUR/USD is back below $1.0700 on Wednesday morning, as investors price in a 70% chance of a rate cut in September and an 80% chance of a rate cut in December.