NVDA report beats Wall Street estimates, but restrictions on exports to China overshadow future prospects

Goldman Sachs told its clients yesterday that the recent rally in equities raises the risk of “near-term disappointment” amid lingering concerns about economic growth and inflation. On Wednesday, Barclays said it no longer expects the US Federal Reserve to raise interest rates in January, down from a previous forecast of a 25 basis point increase. Rates will remain unchanged through next December, the brokerage said.

Nvidia’s (NVDA) profit once again topped Wall Street estimates as the artificial intelligence boom continues to fuel demand for the company’s chips. Third-quarter revenue rose 34% from the previous quarter and 206% from a year ago, reflecting the rising demand for artificial intelligence that is fueling the company’s sales growth through 2023. Revenue guidance for the current quarter also beat expectations to $20 billion plus or minus 2%. Analysts had predicted fourth-quarter revenue of $17.8 billion. When the report was published, the company’s shares unexpectedly fell by more than 6% but recovered by the end of the trading session.

ECB President Lagarde said yesterday that the ECB cannot yet declare victory over inflation and must remain attentive until inflation returns to the 2% target. Comments from ECB Governing Council spokesman Simkus indicate that he favors maintaining the current ECB policy. New car registrations in the Eurozone rose by 14.6% y/y to 855.000 units in October, marking the fifteenth consecutive month of growth in registrations.

UK public sector borrowing data showed that actual figures were well above forecasts, although they remain deeply negative and the lowest since June 2023. The debt-to-GDP ratio remains above 100% due to the stimulus/support measures taken by the government during the COVID-19 pandemic. Persistently high levels of inflation and interest rates exacerbate this deficit, as much of the UK’s debt is tied to inflation. High debt levels make it difficult for the economy to absorb additional economic shocks, putting the country at risk of a credit rating downgrade.

Energy prices opened lower yesterday after weaker-than-expected US economic reports hurt energy demand and crude oil prices. However, oil recovered most of its losses, and gasoline prices rose amid forecasts of strong US fuel demand ahead of the Thanksgiving holiday.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.10%, China’s FTSE China A50 (CHA50) added 0.55% on Tuesday, Hong Kong’s Hang Seng (HK50) lost 0.25% on the day, and Australia’s ASX 200 (AU200) was positive by 0.28%.

Shares of internet giant Baidu (BIDU) rose more than 5% and were the highest performer on the Hang Seng exchange after beating expectations on quarterly earnings and noting the limited impact of restrictions on US chip shipments to China.

Shares of NVIDIA Corporation’s Asian suppliers fell on Wednesday. Nvidia noted a significant drop in future revenue from China, citing the impact of US restrictions on exports of artificial intelligence chips to that country. China accounts for about a quarter of Nvidia’s total revenue, and earlier this year, the US imposed export restrictions on the country to cut it off from the fast-growing artificial intelligence industry. While Nvidia said revenue growth in other regions would offset the negative impact of China, the warning did raise concerns about a possible slowdown in future revenue growth.

More than 80% of economists believe Japan’s central bank is moving closer to an exit from its controversial monetary policy, and the BOJ will end its negative interest rate policy next year. Bank of Japan Governor Kazuo Ueda faces the daunting task of leading Japan out of the accommodative policies of the past decade without causing market turmoil or undermining the fragile economic recovery. About 85% of respondents predict that the BOJ will end the YCC policy, and then the BOJ’s priority will be to end the negative interest rate policy and bring short-term rates to zero.