LONDON (Reuters) – Artificial intelligence (AI) darling Nvidia’s (NASDAQ:) latest earnings and key inflation figures for the euro zone and Australia will help lift markets next week.
Investors are also keeping an eye on gold’s relentless rise to record highs and the dollar’s decline amid growing expectations of a U.S. interest rate cut.
This week’s guide to financial markets from Rae Wee in Singapore, Sruthi Shankar in Bangalore, Ira Iosebashvili in New York, Yoruk Bahceli in Amsterdam and Pratima Desai in London.
1. NVIDIA, you win
Investor enthusiasm for artificial intelligence may be put to the test when chipmaker Nvidia reports earnings on Aug. 28.
Nvidia’s chips are considered the gold standard in the AI field, helping propel the company’s shares up about 150% this year to new record highs.
But the stock’s incredible multi-year rise and the AI boom have also drawn comparisons to the dot-com boom that collapsed more than two decades ago.
Investor reactions last month to disappointing earnings reports from large-cap stocks like Alphabet (NASDAQ:) and Tesla (NASDAQ:) suggest the market may not be in a forgiving mood, especially with many companies in the sector trading at expensive valuations.
Meanwhile, other data to watch will include Friday’s U.S. personal consumption expenditures (PCE) price index, the main inflation indicator tracked by the Federal Reserve.
2/ When September Comes
Euro zone inflation figures for August, due on Friday, will be key in deciding whether European Central Bank policymakers will cut interest rates in September.
The data, released ahead of national release starting on Thursday, follows a small but unexpected increase in July and highlights the difficulties of the final stretch to contain inflation.
Lower oil prices are likely to moderate headline inflation, but attention will remain on core indices and key services sectors, where price growth remains robust.
Traders have increasingly expected an ECB rate cut in recent weeks, so any surprise upside may be worth keeping an eye on. The focus has shifted to growth risks, but euro zone business activity surprisingly held up in August.
Traders are fully pricing in another 25 basis point cut on Sept. 12, followed by two more cuts by the end of the year.
3. High Stakes
The gamble is big for the Reserve Bank of Australia (RBA), which has argued that underlying inflation remains uncomfortably high and therefore needs to keep interest rates tight for a “long period of time.”
July’s inflation figures, due on Wednesday, are likely to show headline inflation falling again to the RBA’s target range of 2-3% for the first time in three years.
Any signs that inflation pressures are fading could also increase pressure on central banks, which have been unusually reluctant globally to cut interest rates at a time when many other countries are about to embark on or have already begun easing cycles.
Investors are also hoping Wednesday’s data might provide some relief to consumer confidence, which has been hit under the weight of rising borrowing costs.
Meanwhile, the August inflation report due to be released in Tokyo on Friday could give further clues about Japan’s interest rate outlook.
4. Eurobulls
The euro has benefited from recent turmoil in global markets and is at its highest level this year against the dollar.
The rise is driven by a divergence in U.S. and euro zone interest rate expectations: Traders expect the Fed to cut rates by about 100 basis points by the end of the year, much higher than they were before the latest U.S. jobs data, while the prospect of two further 25-basis-point cuts by the ECB is not yet fully priced in.
The question is whether the euro, which is at an all-time high on a trade-weighted basis, can maintain its momentum.
German business activity contracted more than expected in August, a negative sign for Europe’s economic engine, while euro zone wage growth slowed last quarter, supporting the ECB’s interest rate cut in September.
Recent price action suggests that euro bulls are cautious, and they may need more conviction of the euro’s rebound to come out strong.
5. All that glitters
Gold has surged more than 20% so far this year, having hit consecutive record highs since 2022. $3,000 an ounce is now within reach.
It’s a stroke of luck for the precious metal, which is primarily used to protect wealth at a time of heightened security risks and ongoing political and economic turmoil.
Russia’s war in Ukraine triggered a rise in gold prices in February 2022. The subsequent surge in commodity prices fueled inflation and eroded the value of monetary assets.
Tensions in the Middle East and uncertainty due to the rapidly approaching US presidential elections further fuelled the rally.
The bullion buying is being driven by the prospect of cuts in U.S. interest rates, putting pressure on the U.S. dollar and making gold more attractive, as it has an inverse relationship with the dollar.
But gold bulls should keep in mind the old adage that “nothing goes up in a straight line,” because the market typically “buys the rumor and sells the facts.”
