GM and BRRR.

Stocks are mildly higher today as the tech sector awaits NVDA’s earnings report on Wednesday afternoon and markets broadly look to Fed Chair Jay Powell’s speech at Jackson Hole on Friday.

NVDA itself isn’t doing much waiting around, as it has surged 5% in early trading to reclaim $450 after spending most of the month below it.

Given NVDA’s last earnings report catalyzed a violent 15% leg up in the Nasdaq in late May, there is an exceptional amount of pressure on the AI leader to deliver stellar results again.

While we’re still fully long NVDA, we think the market fundamentals have changed - so we trimmed some of our tech exposure earlier this month and are in the process of redeploying some of the gains more defensively - premium subscribers got the tip last week when we updated our watchlist.

You’ll want to upgrade to our premium tier for $2/month to see the asset and the move we just made this morning.

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World News

From Red Hot To Simply Red; Is China's Growth Dead?

Wall Street banks continue to downgrade their outlook for China's economic growth amid disappointing policy moves by the People's Bank of China (PBOC). On Monday, UBS joined several other banks in cutting its 2023 and 2024 GDP forecasts for China. This comes after the PBOC's latest rate cuts fell short of expectations. The one-year loan prime rate was lowered 10 basis points to 3.45% but the five-year rate was left unchanged at 4.2%.

The disappointing moves highlight the challenges facing Chinese policymakers. They want to stimulate growth but without putting too much pressure on banks' margins. China's property sector downturn is deepening, weighing heavily on the economy. The sluggish recovery from COVID lockdowns has hit property developers hard, with major players like Country Garden and Evergrande clearly struggling. As China growth slows, foreign investors have been selling Chinese stocks this year.

• Property sector woes multiply: The downturn in China's property sector continues to worsen, with major developers like Country Garden struggling financially and UBS predicting a 25% drop in new housing starts in 2023. Following Evergrande’s bankruptcy filing last week, pressure mounts on an economy heavily reliant on real estate construction.

• Banks' profit squeeze limits rate cuts: While the PBOC lowered 1-year LPR by 10 basis points, the reluctance to cut the 5-year rate shows concerns about squeezing bank margins further. With interest margins already at record lows, limited rate cuts suggest profits are being prioritized over stimulus.

• Investor exodus from Chinese stocks: Sentiment on China has soured among overseas investors, with the benchmark MSCI China index falling 20% over the past year. Flows out of China ETFs like KWEB highlight fading confidence, and with policy support lacking, analysts see further downside for Chinese equities.

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Macro News

All Eyes on Fed Chair as Markets Teeter

US equity futures and global stocks are rebounding on Monday after a rough August so far, as investors look ahead to Fed Chair Powell's speech at the Jackson Hole symposium later this week. Risk appetite has improved despite global bond yields continuing to climb, with the 10-year Treasury yield back above 4.25%. Earnings season is winding down, so Nvidia's report and outlook will be a key highlight. Markets seem focused on signs the economy can achieve a soft landing, though real yields marching higher raises risks of something breaking as in past Fed tightening cycles.

• Mixed messaging muddles China outlook: Chinese banks unexpectedly left a key mortgage rate unchanged despite PBOC pressure to cut rates. The smaller-than-expected 1-year loan prime rate cut of just 10bps confused traders, given last week's rate cut, sending Hong Kong and Shanghai shares down over 1% as China struggles to balance growth and stability.

• European stocks bounce back over 1%: A broad cyclical rebound in Europe saw markets like the SX5E, Italy and France gain over 1% in early trading, recovering some of August's nearly 5% drop. Rising oil prices boosted energy shares, while banks shook off turmoil in China. Still, risks remain from potential Russian gas supply cuts this winter.

• All eyes on Jackson Hole: Markets remain sensitive to central bank signaling. With inflation still high, Powell's speech will be scrutinized for any shift in the Fed's hawkish stance. His remarks could spark volatility if suggesting rates must move higher and remain elevated for longer to tame inflation, even at risk of recession.

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