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• European markets lower after 3% Nikkei slump
• US jobless claims head higher
• Market sentiment likely to remain subdued until Nvidia earnings

European markets are in the red, following on from a dour Asian session that saw a whopping 3.2% decline in the Nikkei 255. The tech-focused selloff seen in the US has evidently resulted in global contagion, but it has become notable that this has started to spread throughout other parts of the market landscape, with Japanese manufacturers feeling the brunt alongside the tech-exposed companies like Softbank. In Europe, the relatively minimal tech weighting means that much of the weakness comes amid concerns around a potential global selloff in the event of a tech revaluation rather than questionable pricing in those markets per se. This means that the relatively boring and traditional construct of the FTSE should ensure its outperformance in the eventual moment that the AI bubble pops. With the UK inflation report and retail sales due this week, the 1% decline seen for the FTSE 100 is a case of the US sneezing and the UK markets catching a cold.

This morning saw a rare piece of US data, as the end of the shutdown finally starts to provide fresh signals over the health of the economy. The latest jobless claims reading saw a rise to 232k, highlighting the gradual deterioration many are expecting to see in the fourth quarter. With today’s factory orders and weekly ADP payrolls data coming ahead of Thursday’s jobs report, the current 46% chance of a rate cut in December could shift in the days ahead. Coming off the back of cautious comments from Fed members over the weekend, we have now seen a more expansive tone from Waller and Jefferson who both noted the benefits of cutting further despite inflation concerns.

This week looks to be pivotal for financial markets, with recent concerns over the potential end to the AI trade meaning that we are expecting major volatility in the leadup and response to tomorrows Nvidia earnings. Coming after the close, this report will represent one of the biggest moment for markets in months. Anything but a perfect scorecard will likely exacerbate the current weakness evident in the sector, hammering home concerns that the AI boom that has been artificially created through a series of inter-company deals rather than providing significant revenues from the end user. Meanwhile, with Amazon issuing $12bn worth of bonds to further fuel their AI investments, traders are concerned that we are seeing these giants turn to the debt market rather than free cash flow to fund their expansion. With Michael Burry promising a big announcement next week, there is a risk that we see the current concerns play out until that uncertainty clears. However, with the Nvidia earnings report bringing a potential turning point that could spark another market slump, it comes as no surprise to see the bulls hold off for now.

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