Morning Wrap: ASX 200 to fall, S&P 500 ticks higher despite Nvidia weakness + Lithium prices dip

ASX 200 futures are trading 12 points lower, down 0.17% as of 8:20 am AEST.

Major US benchmarks ticked higher overnight as bond yields fell to their lowest levels in two months, oil prices briefly tumble 5% as markets reprice for a recent string of events, Nvidia's latest earnings topped analyst expectations but received a muted reaction, OpenAI has reached a mutual agreement for Sam Altman to return as CEO and lithium futures took a sharp tumble on Wednesday.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher in relatively uneventful trade (Source: TradingView)

MARKETS

• S&P 500 finished higher in a relatively rangebound session ahead of the US Thanksgiving Day holiday

• Nasdaq closed higher but off best levels due to weakness from heavyweights Nvidia (-2.5%) and Tesla (-2.9%)

• Volatile session for oil prices, down 1.4% from a session low of -5.1% after US crude oil inventories increased more than expected

• Market narrative remains relatively unchanged: Seasonality tailwinds, peak Fed and falling yields, strong earnings from Nvidia (but expectations and positioning elevated into the result), sustained CTA buying

• Hedge funds short sellers suffer an estimated $43bn of losses in sharp rally in recent days (FT)

• RBC joins BofA in expectations for S&P 500 to reach 5,000 in 2024 (Yahoo)

• OPEC delays November 26-30 policy meeting without providing a reason (CNBC)

• Saudis in difficult talks with other members about their production levels (Bloomberg)

• Goldman Sachs says OPEC will use its pricing power to keep prices between US$80-100 a barrel and sees a 35% likelihood of deeper production cuts

STOCKS

• Nvidia's revenue guidance tops expectations as AI chip boom powers on (Bloomberg)

• Sam Altman returns to OpenAI as CEO (Reuters)

• Bezos expected to aggressively sell more shares of Amazon (CNBC)

• John Deere says higher borrowing costs will hit demand, guides to weaker-than-expected 2024 profit outlook (Reuters)

• HP forecasts downbeat first quarter profit amid slow PC market recovery (Reuters)

CENTRAL BANKS

• Fed minutes stress careful approach, does not rule out more hikes (Reuters)

• BOJ reduces JGB purchases at its regular buying operations, yields rise (Reuters)

• ECB's Lagarde say can't declare victory on inflation until 2% goal met (Bloomberg)

• ECB's Schnabel says disinflation process projected to slow (Bloomberg)

• RBA's Bullock says board seeks to cool demand, maintain employment (Bloomberg)

GEOPOLITICS

• Israel agrees to four-day truce with Hamas, 50 hostages to be released (FT)

• Biden's diplomatic breakthrough on Israeli hostage release after weeks of talks brokered by Qatar, US and Egypt (FT)

• Russian parliament approves spending bill to allocate more on defense than social services for first time in decades (AP)

CHINA

• Chinese government advisers to seek 2024 GDP growth target 4.5% to 5.5% (Reuters)

• China state bank purchases said to be accelerating, yuan gains (Reuters)

• Evergrande chairman's mansions seized by company creditor (Bloomberg)

• Sunac China project secures loan from government-backed asset manager (Bloomberg)

ECONOMY

• US short-term inflation expectations climbed to a 7-month high in Nov (Bloomberg)

• US weekly jobless claims fall more than expected (Reuters)

• US durable goods orders fall on weakness in transportation equipment (Reuters)

• Japan downgrades economic assessment for first time in 10 months (Reuters)

---

Nvidia Crushes Earnings, Shares Fall on China Trade Concerns

Nvidia shares slipped around 2% after its forecasts failed to meet sky-high expectations.

Third quarter results summary:

• Revenue up 205% to US$18.1bn – Beat the US$16.1bn expected 

• Data centre revenues up 278% to US$14.5bn – Beat the US$12.8bn expected 

• Gross margins up 1,883 bps to 75.0% – Beat the 72.5% expected

• EPS up 593% to $4.02 – Beat the $3.37 expected

• Free cash flow up 5,202% to US$7.0bn – Missed the US$7.1bn expected

Nvidia expects fourth quarter revenues to rise 230% year-on-year to US$20.0bn, which was ahead of the US$17.8bn expected by analysts. 

Key management quotes and outlook commentary:

• "NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off" – CEO Jensen Huang

• "Our sales to China and other affected destinations, derived from products that are now subject to licensing requirements, have consistently contributed 20-25% of Data Center revenue. We expect that our sales to these destinations will decline significantly in Q4 FY 24..." – CFO Colette Kress 

• "Export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term.” – CFO Colette Kress

Brokers remained upbeat and most upgraded their share price targets:

• Bank of America: Reiterated a Buy and raised its target price to $700. “We think the stock could go through some near-term churn, but we expect fundamental strength to help it outperform.” 

• Goldman Sachs: Reiterated Buy and revised its target price to $625 ($605 prior). “We increase our 2023-25 revenue and non-GAAP EPS estimates, on average, by 11% and 12% respectively.”

---

A Buying Spree for US Stocks

Commodity trading advisers (CTAs), which are known for using momentum-driven strategies in futures markets, purchased approximately US$70bn in US equities in the past two weeks.

CTA positioning is currently far from extreme, in fact it would need to add an extra ~US$30bn or so to reach 'extreme' levels. This suggests there is a little more wiggle room for upside before positioning becomes an issue.

Source: Goldman Sachs

---

Lithium Prices are Spiraling Lower

China's most-traded lithium carbonate futures contract tumbled 7% on Wednesday to a record low of 124,000 yuan a tonne.

The VanEck Rare Earths/Strategic Metals ETF (-1.55%) and Lithium & Battery Tech ETF (-1.3%) were also the worst performing ETFs in the above table.

Pilbara Minerals (ASX: PLS) shares tumbled 3.8% on Wednesday, not far off 7-month lows.

ASX corporate actions occurring today:

• Trading ex-div: ALS (ALQ) – $0.196, Cobram Estate Olives (CBO) – $0.033 

• Dividends paid: None

• Listing: None

Economic calendar (AEDT):

• 9:00 am: Australia Manufacturing and Services PMI

• 8:00 pm: Eurozone Manufacturing and Services PMI