We're talking about a capacity of around 10 gigawatts – roughly the output of 10 large nuclear reactors – it is HUGE. So basically, OpenAI will need to buy an enormous amount of Nvidia chips to make this happen, and Nvidia is making sure it has a seat at the table. It's a genius move. It will not only help them sell more chips to one of the world's most famous – if not the most famous – AI chatbot makers, but it also ties them closer to OpenAI's future. Investors loved the idea. Nvidia rallied nearly 4% and hit a fresh ATH on the news – and proved again that the company constantly finds ways to cooperate, integrate, navigate political and geopolitical jungles with grace and make its way through. Holy Nvidia. It is now worth nearly $4.5 trillion.
Anyway, Oracle did even better yesterday – with a more than 6% rally – on news that they will rebuild and secure the new US version of TikTok's algorithm.
As such, the technology rally led the major US indices to fresh ATHs yesterday. The S&P 500 extended gains while the Nasdaq 100 is less than 250 points away from the 25K psychological mark. Yet the non-tech names look a bit less cheery – with the equal-weighted version of the S&P 500 trading flat, and European carmakers tanking as Porsche and VW cut their outlook for the year.
In the bond space, the US 2-year yield rebounded past 3.60% even after Trump-linked economist Stephen Miran – now in the headlines for his push for lower rates – argued that the neutral rate is much lower than current levels and that he would cut rates by 150bp very quickly to get there. He even added that such a move wouldn't be "panic," while a 75bp cut would be. The kind of comments that are so far-stretched they can't be taken seriously enough to shift market expectations. Proof? The 2-year didn't budge – on the contrary, it went higher. That's a sign that lowering rates wouldn't necessarily bring down long-term borrowing costs if the size and the speed of easing aren't warranted. Because lower rates also boost inflation expectations and limit room for further cuts down the road. So Miran is in, and he will be pushing for cuts. The White House is too. But the reality is that the Fed can't hand out rate cuts like candy at a party. The economic data – growth, jobs and inflation – will matter for market pricing.
Good news is that many Federal Reserve (Fed) members are convinced that the weakening jobs market should be addressed – but carefully, by keeping inflation in mind. And good news is that US core inflation – the Fed's favourite gauge – is expected to have eased in August. If that's the case, dovish Fed expectations will continue to weigh enough to keep equity traders on the back of a bull, and the US dollar under pressure. The EURUSD is timidly testing the 1.18 offers, while Cable is flirting with the 1.35 resistance after holding near its 50-DMA yesterday.
Today, investors will have an eye on early PMI data for September. Encouraging eurozone numbers could cement the expectation that the European Central Bank (ECB) won't need to deliver another cut this year and help euro bulls gain ground, while weak UK numbers could confirm slower activity and fuel worries ahead of the next budget announcement – not expected to be a sweet moment for taxpayers. Fundamentally, the euro benefits from relatively stronger conditions than sterling or the dollar. Therefore, the bullish move in EURGBP is backed by diverging outlooks. For EURUSD and Cable, it's trickier. The divergence between more hawkish ECB/Bank of England (BoE) vs the Fed is already largely priced in. The long-term outlook for the dollar remains bearish as the US exceptionalism trade wanes. But in the short run, a minor USD rebound is still possible, fueled by yields reminding traders: hey, rates won't come down that fast.
Interestingly, yesterday's tech-led rally couldn't save crypto. Bitcoin lost more than 2% and slipped below its 100-DMA, while altcoins took a heavier hit – Ethereum fell more than 5% and Solana slid over 6%.
Gold, on the other hand, extended its rally to a fresh ATH near $2,600 per ounce, on tense geopolitical risks in Ukraine and Gaza. For Gaza, an increasing number of developed nations are recognizing the state of Palestine, straining relations with Israel and the US – the latest being France. In Europe, meanwhile, countries close to Russia's border worry that Moscow is testing NATO's nerves with repeated airspace violations. Surprisingly, oil bulls remain muted despite the rising geopolitical risks. US crude is testing the $62pb support regardless of tensions, hinting that the bears could gain the upper hand and push the price of a barrel to $60/62pb range – and potentially below.
