Hawkish Fed Minutes

Wednesday's accounts of the Fed's last policy decision, when it further moderated the pace of tightening with a 25 basis point rate hike, were overall hawkish and reaffirmed the higher-for-longer narrative.

Participants observed that inflation remained "well above" the 2% target and bringing it down would require maintaining a restrictive policy stance, in a process that is "likely to take some time" ^[1]

We already knew that two non-voting members had advocated for a larger 0.5% increase and the accounts revealed that "a few participants" backed such a move. Unfortunately, this is a rather vague reference, but clearly indicates that there are officials willing to go big.

Nvidia Upbeat Outlook

After markets closed on Wednesday, chip designer NVIDIA reported Revenue of $60.5 billion for Q4 FY2023 (period ended January 29), marking a 21% slump compared to a year ago, but surpassed the previous quarter. Similarly, GAAP Gross Margins of 63.3% were lower than Q4 FY2022, but rose on a quarterly basis.

The results were not very good, but the chip-designer's outlook for the current one was rather upbeat. Nvidia projects higher revenue of $6.5 billion in Q1 FY2024 and a boost in Gross Margins to 64.1%. This will be partly driven by demand for Artificial Intelligence (AI) semiconductors, as OpenAI's ChatGTP AI chatbot has taken the tech world by storm.

Tech behemoths such as Microsoft, Google, Baidu and other others, have all unveiled similar conversational AI services. Nvidia's CEO Jesse Huang said that the activity around the firm's AI infrastructure "has just gone through the roof in the last 60 days", during the earnings call ^[2]. Markets cheered Nvdia's upbeat forward guidance as the stock jumped around 9% after-hours.

Geopolitical Fears

Markets also digest heightened Sino-US tensions, in the aftermath of the "balloon" incident. Speaking on NBC's Meet the Press on Sunday, US Secretary of State Blinken said that he conveyed to his Chinese counterpart that this "was unacceptable and can never happen again". Furthermore, he added another layer to the strained relations, expressing his concern that China is considering the provision of "lethal support" to Russia against Ukraine. ^[3]

A few days later, Russian President Putin vowed to keep the war going and also announced the suspension of the membership to the New START nuclear treaty, sparking further geopolitical fears ^[4]. US State Secretary Blinken talked of a "deeply unfortunate and irresponsible" decision. ^[5]

NAS100 Analysis

Sustained geopolitical tensions and heightened expectations around the terminal rate due to strong data and aggressive commentary, pose headwinds for Wall Street. NAS100 tested the key support region around 12,000 yesterday, which includes the EMA200 and the 38.2% Fibonacci of the December low/February high advance.

Daily closes below it, would shift bias to the downside and expose the index to the daily Ichimokou Cloud (at around 11,400), but sustained weakness that would challenge 11,000 does not look that easy yet.

Despite the initial reaction lower to Wednesday Fed minutes, NAS100 brushed them off and ended the day in positive territory. The accounts had an overall hawkish tone, but did not offer anything surprisingly aggressive. Furthermore, Nvidia's upbeat guidance helped the tech sector.

The tech-heavy index, defended the aforementioned critical support, above which bulls remain in control, not relinquishing the ability to push for higher higher highs (12,900). This would likely require a catalyst though, while 13,724 look distant at this stage.

The next leg of the move will be determined by the incoming data, including Friday's new inflation update from the US, in the form of the Personal Consumption Expenditures (PCE).