“When in May go away” has often been the catch cry for investors during the month of May, but not this year. US equities continue their impressive run as stocks like Nvidia report better-than-expected results. Demand for AI chips remains robust, with revenue for the quarter coming in at $26.04 versus an expected $24.65. Forecasts remain just as buoyant for the next quarter, indicating residual strength in the market. Investors have taken this as a sign that the overall market is cheap and expect sentiment to continue as the stock sails through US1,000. However, Nvidia does not represent the entire market and looking back over the economic data of late presents a weaker picture; one could think that the market is showing signs of exuberance. Not until we see a reason for thinking that profits would be reduced will investors start locking in profits.  The trend is your friend regardless of what tipping points are witnessed. Adding to this sentiment was news that the PBoC removed the national minimum mortgage interest rate and lowered downpayment rates, with some reports indicating the government is closer to enacting a program to acquire unsold property inventory at reasonable prices, a form of stimulus designed to proper up the weak property sector. 

But first, Nvidia, the stellar performance continues. The recent earnings report beat analyst forecasts, and further, the projected earnings for the next quarter are forecast to be north of US28 billion. That puts revenue growth at 107% year on year, and the stock is expected, based on forecasted earnings, to trade at US 1050 soon. Artificial Intelligence (AI) remains the buzzword for investors in the US as they continue to look at the sector with big eyes. Since April 2023, Nvidia is up 216%, Meta is up 109%, Amazon is up 74%, Google is up 66%, Microsoft is up 42% and Alphabet is just up 3%. Tesla is the only of the “Magnificent 7” to disappoint investors, being down -19%, although there remains a lot of excitement around what they are predicting. From here, what can we expect? The consensus is that growth will continue, and this will continue to support healthy profits for corporations as companies continue to seek better ways to conduct business and make profits. The market size in the AI market is projected to reach US$184.00bn in 2024. The market size is expected to show an annual growth rate (CAGR 2024-2030) of 28.46%, resulting in a market volume of US$826.70bn by 2030. Can this support the rest of the market?

This is an interesting conundrum traders find themselves in today. Although based on economic performance, some companies look overvalued, and although general economic conditions may look weak, AI has the potential to significantly increase total factor productivity across the economy, impacting a wide range of industries through multiple channels – such as the labour market, investment and productivity. Hence, profits can be supported through the implementation of AI, which in turn will support company valuations and support the general market.  Adding to this support is the continuing stimuli coming from China.

China pledges $42 billion in several measures to support the struggling property sector. Evergrande and Country Garden created headlines when they collapsed; however, the impulsion took time and was managed by the government. The sector remains weak; however, the recent stimulus measures released last Friday are hoped to support the property sector and other areas of industry. The PBOC has provided finance so that companies can provide credit to enable state-owned enterprises to buy unsold apartments to help developers get funding to finish construction on pre-sold properties.  It will take two years to clear the existing stock of new homes, which is twice as long as the historical pace of 12-14 months. The housing market remains soft, but rest assured, the PBoC will be there to support it even if, as indicated by the recent 70-City Index, the state of decline continues.  Testimony to PBoC stimulus is seen in recent profits earned by China's industrial firms which rose 4.3% yoy to CNY 2,094.69 billion in the first four months of 2024, the same pace as in the prior period. The latest result underscored continued efforts by the government to keep a recovery momentum amid persistent challenges such as weak domestic demand, deflation risks, and a property downturn.

In the US, investors will be closely monitoring PCE Price Index, personal income and spending, and speeches by several Fed officials. Also, the focus will be on the 2nd estimate of Q1 GDP growth, corporate profits, the, CB consumer confidence, pending home sales, and the Case-Shiller Home Price Index. In China we have NBS PMI for manufacturing, non-manufacturing and general, with all tipped to be better than expected. 

On the position front, we remain … in the S+P (…, …), looking to find an opportunity to lower the position size and exit, albeit we are hovering around resistance, which makes it tricky.  We are … at … in the ASX and have added at … at a close above … we will review the position. We are still … USD/JPY at … and at ... In the other currencies, we are … in AUD/USD at … and AUD/CHF ... We … Gold (…) and Silver (US… and …) all metals positions are doing extremely well for us.

Trade Focus:

Fundamentals:

USDJPY: The BOJ has been active in managing the currency over the past few months. The intervention occurred in April and May. Many suspect the BoJ will not intervene again …

Technical Analysis:

Interestingly, since that last round of intervention, the Yen has gradually depreciated daily, coming close to our entry-level on one of our positions …

Support              …

Resistance         …

Momentum        …