Markets nervous ahead of Fed minutes and Nvidia results, HSBC profit hit by Chinese impairments

“Markets remained skittish ahead of two major events on Wednesday that could have a significant influence over the direction of equities in the coming weeks. Tonight, we will get the minutes from the Federal Reserve’s latest interest rate decision meeting as well as quarterly results from Nvidia. Both have the power to move the dial for investor sentiment,” says Danni Hewson, Head of Financial Analysis at AJ Bell.

“The Fed kept rates unchanged for the fourth time in a row at the January meeting and indicated it was not ready to start cutting. The meeting minutes should lift the lid on this thinking and more likely spell out that inflation needs to come down further before the central bank reaches for the scissors.

“Yesterday, the Bank of England’s Andrew Bailey confirmed that the UK central bank wouldn’t have to wait until inflation hits its 2% target before cutting rates, and that prompted a drop in bond yields. Markets are hoping the Fed follows the same path and takes a more flexible approach to cutting rather than waiting to hit its identical 2% target before lowering the cost of borrowing.”

Nvidia

“The second half of February has a reputation for being a challenging time for investors. While equities have run out of steam in recent days, Nvidia’s results could be make or break time for markets.

“Elevated expectations mean the chip specialist has no room for error. It needs to smash it out of the park and show that the AI boom still has momentum.

“Last time round it spooked investors with a warning about a slowdown in Asian sales linked to export restrictions. While that factor should have already been priced in by the market, there is still a chance some investors will have forgotten about the headwinds and get spooked by any weakness in that part of its results. Supply issues could also be a pinch-point for the business if the AI boom has intensified, although there have been suggestions by investment bank analysts that lead times are shortening.

“Nvidia’s shares fell 4.4% yesterday which implies some nervousness on behalf of investors, and they were down a further 2% in after-hours trading. While the scale of these declines is minuscule compared to the gains the stock has made over the past year, they do give an insight into how investors are positioning themselves ahead of the results. Some investors might have concluded it is better to lock in some profit now in case the results disappoint rather than risk being too exposed if the stock slumps on the news.”

HSBC

“Exposure to Asia has given HSBC a different growth profile than its UK-focused counterparts but it brings risk too and that is writ large in its fourth quarter and full year results.

“The company has been stung by a $3 billion charge on its stake in a Chinese bank and write-downs associated with commercial real estate and the sale of its French business. That’s made the results a bit of a mess and led to a miss on full year forecasts.

“The outlook is also a bit of fudge with the company expecting to hit previously guided returns in the mid-teens for 2024, but only once some one-offs are stripped out. Costs are moving higher and loan losses are also going in the wrong direction from the bank’s perspective.

“It is worth saying that the write downs announced today are accounting decisions and have zero impact on HSBC’s capital ratios or ability to dole out cash to shareholders – they also shouldn’t come as a giant shock given Standard Chartered had to book a big impairment charge related to China last year.

“Amid all the noise, news of a $2 billion share buyback has been lost which feels a little unfair given the company will have returned upwards of 10% of its market valuation in dividends and buybacks in respect of 2023.

“Overall, HSBC had a robust year in 2023 but a sour end to the 12-month period gives a sense of a business which is losing momentum. It could really do with a turnaround in fortunes in China to help justify its continued positive stance on the long-term opportunity in the world’s second largest economy.”

These articles are for information purposes only and are not a personal recommendation or advice.