Nvidia results loom large, as Shein ditches London, and ECB head could leave early

Risk sentiment has lost some steam on Wednesday, after a strong rally on Tuesday. US equity futures are pointing to a lower open and European stock indices are muted. There are no major drivers of sentiment this morning, however, multiple factors have led to a softening in risk appetite including: higher bond yields after a weak auction of Japanese debt, Shein moving its proposed listing to Hong Kong from London and the prospect of ECB Governor, Christine Lagarde, leaving her position at the ECB early.

Trade deal possible between US and Canada

Trade negotiations are never far away. On Tuesday, the prospect of easing EU/US trade tensions helped to boost risk sentiment, on Wednesday, the focus has switched to Canada, after Mark Carney said that US and Canada could agree a new bilateral trade pact that would remove hefty tariff levels in the coming months. While this suggests that a trade deal is not exactly forthcoming, the market can take some comfort in the fact that negotiations are moving the right direction.

Tariffs less toxic for markets

Overall, tariffs have become less toxic for markets as the weeks pass by. The market no longer takes Trump at his word when he delivers swathing tariff hikes seemingly at random, also the incremental news flow in recent weeks suggests that Trump’s shake up of global trade will not be as bad as first thought back in April. This has helped to fuel one of the S&P 500’s strongest ever recoveries. The S&P 500 is higher by 18% since its low from last month.

The Vix is also worth watching, it has moderated back to ‘normal’ levels. The Vix is currently at 19.26, which is just above the average rate of the past year at 18.5. Even last week’s surge in bond yields only caused a moderate bump in  the Vix index, which has since retreated. This tells us a couple of things: 1, Tariffs are the most important drivers of markets right now, even more so than bonds and 2, if volatility can remain at this level, then the prevailing uptrends in stocks can continue.

Shein’s HK decision unlikely to dent FTSE 100

Shein’s decision to move its planned listing from London to Hong Kong, may be a blow to London’s anemic listing environment, however, it could  be a blessing in disguise. Apparently, the Chinese regulator insisted the listing was moved from London. This suggests that it was becoming political, which is usually problematic in the long term. The difficult relationship between Beijing and Washington, and the UK’s desire to stand shoulder to shoulder with the US could have made a Shein listing more trouble than it was worth. The fact that the FTSE 100 has barely budged on this news and remains within touching distance of an all-time high, is a sign that the Shein listing was never priced into the UK market and the fact it is now listing in HK is unlikely to have an impact on the FTSE 100.

An ECB without Lagarde

The euro has recovered earlier losses as we have progressed through Wednesday, however, it is trading in a relatively tight range, suggesting that reports Christine Lagarde may not fulfill her full term at the ECB is not having an impact on European markets. The interest rate futures market is also unchanged, and a rate cut is still expected next month. For now, US tariffs on the EU are far more important for European asset prices and interest rate expectations, compared to who runs the ECB.

Nvidia results: Key factors to watch

Nvidia earnings are the focus this afternoon, we have already sent out our earnings preview, but here are the main features of the earnings report to watch out for.

• How will the US ban on sales of H20 chips to China weigh on earnings?
• This could force a $5bn charge on unusable inventory.
• Revenue is expected to jump by 66% for last quarter compared to a year earlier at $43.3bn.
• Data centre revenue is expected to be 77% higher at $39.4bn and drive the bulk of sales at Nvidia.
• Net income is expected to rise by 22%.

This is expected to be another quarter of monster revenue for Nvidia, however it may lead to the familiar question, can these results continue? Thus, Nvidia’s outlook for future revenues will be worth watching closely. Nvidia only produces outlooks for the next quarter, so the focus is likely to be on demand for Blackwell chips, Nvidia’s most advanced chip currently for sale. The market will also be looking for an update on demand from China, and to see if CEO Jensen Huang’s charm offensive with President Trump will be enough to reverse the ban of H20 chips to the world’s second largest economy.

Expectations are for strong demand, and the 26% rally in Nvidia’s stock price so far this year suggests that the market is not pricing in a weak earnings report this evening. We doubt that the market will be too off the mark when it comes to revenue expectations, instead the focus could shift to the cost of curbs to selling chips to China, which came into effect last quarter.

Nvidia’s share price jumped sharply on Tuesday, as risk assets rallied, led by US tech. The stock price is up just a touch in pre-market trading on Wednesday, and we expect the share price to remain calm in the lead up to the results. The average move in the stock 1 day after results for the last 8 quarters has been 8.5%, so the bias is for a move higher in the stock price, if earnings can exceed expectations and $140, the high from February, could be in focus.

Nvidia results will also be important for the overall Magnificent 7, which has experienced a change in leadership in recent weeks. Nvidia was one of the weakest big tech firms for most of this year, however, in the past month its recovery has been rapid. It has gone from zero to hero, and it is now the second best performer in the Magnificent 7, behind Tesla. This is a sign that AI is once again a key driver of big tech stocks, and Nvidia results could determine 1, the strength of AI demand, and 2, whether the recovery in AI stocks can continue.

Chart 1: Members of the Magnificent 7 over the past month, normalised to show how they move together.

Source: XTB and Bloomberg

It is worth noting that this is the tail end of the Q1 earnings season, and so far, 8% of the companies that have reported results have beaten expectations. This is lower than the previous quarter, but still suggests a resilience in stock markets after a challenging first few months of the year.