Morning Macro 28th August 2025
Nvidia delivered another blockbuster quarter on the back of AI-server demand, with Q2 revenue 56% higher y/y at $46.7bn and beating estimates of $46.5bn. Despite the positive news the stock is down over 3% in the after-hours trading as investors were worried about the China overhang – NVIDIA assumes zero sales of its H20 AI chips to China – plus a guidance range that didn’t smash the most bullish whispers and its sales growth looks to be on a decelerating path now (Graph 1, Bloomberg). Nevertheless, NVIDIA still remains the most valued company in the world with a market cap of around $4.4 TRILLION and now the question is whether it can overtake the Nikkei Index’s market cap of $5.6 trillion.
In the EU, things aren’t looking as positive, however, French risk flared after Prime Minister François Bayrou set a confidence vote for 8 September tied to sweeping budget cuts. With the three main opposition parties saying they won’t back him, markets priced the risk of government collapse and tougher funding conditions. France’s blue chip CAC 40 index fell over 2% to a three-week low. In rates, the 10-year OAT briefly hit 3.53%, and the OAT-Bund spread widened to 78 bps, the most since April. Meanwhile, the spread between French and Italian 10-year yields, which was around 150 bps two years ago, is now around 10 bps! And the Euro is falling… We were talking about a strong Euro a couple of weeks ago but now we can see a clear positive relationship between a widening yield differential (Bund vs French bond) and a declining EUR/USD rate since the recent headlines (Graph 2).
Meanwhile, Credit risk picked up too: French banks’ CDS pushed to recent highs as investors fretted that wider sovereign spreads could lift wholesale funding costs and squeeze margins. And the debt service ratio in the non-financial sector in France keeps rising, while other countries are experiencing a decline – higher debt service ratio means a higher proportion of your cash flow needed to cover your debt obligations (Graph 3)
Finance minister Éric Lombard tried to steady nerves – saying he’s “not resigned” to the government falling – but also warned that if France fails to fix its finances, IMF involvement could become a risk scenario!!!
Data today – Euro Area Economic Sentiment and Inflation Expectations, US GDP 2nd estimate, US Jobless claims
