Asian-Pacific stock indices mixed

Futures on the NASDAQ 100 were up over 1% in early trade this morning. Tech stocks caught a strong bid after the release of another stellar set of quarterly numbers from NVIDIA, the world's largest corporation by market capitalisation, and the company at the vanguard of the march to AI infrastructure development. The chip designer reported second-quarter revenue up more than 106% year-on-year and forecast third-quarter revenue of $108 billion, ahead of expectations.

Source: TN Trader

Data centre revenue jumped 117% to $89 billion, while the company expects future revenue growth of about 70%, well above the roughly 44% average analyst estimate. Nvidia noted that memory supply was tight and that component costs were rising, while its third-quarter outlook assumes no data-centre compute revenue from China.

Nvidia's forecast reinforced expectations that AI infrastructure spending remains strong, offering fresh support to the tech sector in general. NVIDIA jumped around 4% in the immediate aftermath of its earnings release but then pushed higher in European trade. The news saw broad-based gains across tech, with semiconductor stocks such as Micron Technology, Marvell Technology (which reports after tonight's close), Arm and the SK Hynix ADR all up between 4 and 5%.

The iShares Semiconductor ETF (SOXX) was up 2.9% soon after the European open. But the exuberance didn't carry through to the broader market. The S&P 500 was modestly higher due to a large weighting to the tech and telecoms sectors. But futures on both the Dow and the small cap Russell 2000 were lower this morning, perhaps reflecting concerns over the stickiness of US inflation and some caution ahead of Fed Chair Kevin Warsh's keynote speech tomorrow at the Jackson Hole Economic Symposium.

Yesterday saw the release of the latest Core PCE update. It came out at +3.3% year-on-year. This was bang in line with expectations, and unchanged from the previous update. Unfortunately, it remains way above that 2% Fed inflation target, as it has been for well over five years now. Perhaps more concerning is that this data series is not only showing US inflation to be remarkably sticky, but it also seems to be trending upwards, having edged up significantly from 2.6% in April last year.

Despite this, there was little movement in the CME's FedWatch Tool. This shows a 36% likelihood of a 25-basis point rate hike at the FOMC's next meeting in just under three weeks' time. It also suggests a 72% probability of at least one 25-basis point rate increase before the end of the year. Yet there are signs that away from AI infrastructure development, other areas of the US economy are less rosy.

Payrolls have disappointed for two consecutive months now, while Retail Sales, along with quarterly results from some major retailers, suggest that the US consumer is wary about splashing out. Perhaps this isn't the kind of environment in which to raise borrowing costs.

Beyond Nvidia, investors were also digesting some other significant earnings reports. Salesforce shares surged 14% in extended trading after second-quarter revenue beat forecasts. CrowdStrike jumped 9% after raising its annual revenue guidance, while Okta soared over 20% after beating on earnings and revenues, and raising its full year guidance. HP dropped 9% on weaker PC shipments.

European investors appeared relatively nonplussed by NVIDIA's strong earnings report after the US close last night. Futures on European indices were a touch firmer in the early hours of the Asian-Pacific session. But this initial energy quickly drained away taking everything, except the German DAX, into negative territory soon after the open.

The German index got a lift following a better-than-expected reading on the GfK Consumer Climate survey. It's worth noting that this remains solidly negative, as it has been for most of the last six years. But the ever so slightly less negative sentiment goes a long way, especially when put alongside Tuesday's uptick in German GDP and the ifo Business Climate survey.

The German DAX continues to close in on resistance near its all-time highs from earlier this month. Aside from this, there were some European corporations which reacted favourably to NVIDIA's news. Dutch lithography machine supplier ASML rose 2.5% and other tech stocks such as STMicroelectronics, Infineon and BE Semiconductors all gaining between 2% and 4%, all rallied as NVIDIA's results confirmed that hyperscalers are accelerating capital spending to secure AI-related hardware.

Source: TN Trader

The US dollar was firmer across the board this morning. This saw the cash Dollar Index push back above 99.00 to trade at its best level since Wednesday last week. This was when the greenback came under heavy selling pressure after US Treasury Secretary Scott Bessent announced that the department would double the size of its purchases of longer-dated dated government bonds.

This was Mr Bessent's second attempt to drive down the dollar, the first being his decision to join Japan's Ministry of Finance in an intervention to support the yen at the end of July. It is no secret that Mr Bessent, along with President Trump, want a weaker dollar to help US exporters sell their goods overseas. Whether they'll get it or not is another matter.

Yesterday, Core PCE, arguably the most important measure of US inflation, came out in line with expectations and unchanged from last month. Unfortunately, at +3.3% year-on-year, it remains significantly above the Fed's 2% inflation target. This puts more pressure on the Fed's FOMC to vote for a rate hike at their next meeting in just under three weeks' time.

Despite this, the probability that the Fed leaves rates unchanged at its meeting next month is around 64%. That's certainly not a done deal, and it could change after Fed Chair Kevin Warsh delivers his keynote speech at the Jackson Hole Economic Symposium tomorrow afternoon. But it's worth remembering that Mr Warsh is against forward guidance from the central bank.

So, he may choose to play his cards very close to his chest. If so, then that could mean that the September meeting stays 'live' right up to the last minute, in that a rate hike or 'no change' both remain possible.

The GBP/USD pair has pulled back from resistance around 1.3640. The sticky PCE print backed the case for at least one more Fed hike this year and helped the dollar hold onto its overnight gains. In contrast, the Treasury's government bond buyback strategy is now weighing on longer-dated Treasury yields, while optimism over a potential US-Iran deal and Hormuz reopening capped the safe-haven dollar's advance.

Source: TN Trader

Gold was firmer overnight, rallying back above $4,640 in the early hours of the Asian-Pacific session after dropping below $4,600 yesterday afternoon. But it was unable to build on overnight gains and then slipped back below $4,600 as London lunchtime approached. The precious metal faced the headwind of the stronger dollar which continues to make back some of its August losses.

Yesterday's Core PCE number reminded traders that US inflation continues to be a significant issue, one which may lead to at least one 25 basis point interest hike before the end of this year. Gold has put in an impressive rally over the past four weeks. But this has left it looking a touch overbought.

If it can steady around $4,600 and then consolidate, that could be enough to recharge it for another rally. But this would be difficult if the US dollar were to continue to push higher. In the short term, much may depend on Fed Chair Kevin Warsh's speech at Jackson Hole tomorrow afternoon.

Source: TN Trader

Silver is already showing signs of consolidation as it repeatedly bumps its head against resistance at $70 per ounce. It too is in thrall to the US dollar, so yesterday's elevated inflation data didn't help the silver bulls at all. Despite this, US Treasury yields at the long end have pulled back from recent highs thanks to the Treasury's buyback strategy.

Source: TN Trader

Meanwhile, renewed optimism over a potential US-Iran deal which could lead to the reopening of the Strait of Hormuz may be capping the dollar's upside to some extent. This in turn should provide some support for silver prices.

Oil prices have steadied over the last two days and buyers have stepped in to take advantage of the sharp selloff at the beginning of this week. Front-month (October) Brent lost close to 9% between Friday's close and the week-long low hit yesterday morning. Prices pulled back following reports that the US and Iran had reached a new ceasefire arrangement. This came despite, or because of, the stricter set of sanctions on Iran announced by US Treasury Secretary Scott Bessent on Monday.

Source: TN Trader

Meanwhile, Tehran and Oman were thought to have agreed a temporary maritime route through the Strait of Hormuz. But Iranian officials insisted there could be no full reopening until the US met its commitments, spelled out in the memorandum of understanding signed by both parties in June.

Shipping data continues to show traffic through the Strait running at a fraction of pre-war levels. Yet producers have been adept at finding other routes out of the Gulf, such as the East-West pipeline, while prices have also been kept in check as countries draw down their stockpiles.

Bitcoin was up sharply overnight and is once again approaching an area of resistance between $80,000 and $82,000. It attempted, and failed, to break above here in early May, so the bulls will be hoping for better luck this time.

Overall, bitcoin has put in an impressive performance, ever since it broke above the top of a tight range that had been building since early July last Wednesday. The trigger for that breakout was the US Treasury's attempt to drive down long-term US government bond yields to keep a lid on borrowing costs. This led to a sharp selloff in the US dollar and a rip higher in precious metals and cryptos.

The Treasury announcement saw bond yields dip and then rally back to where they started within two days. But yields have begun to pull back again as the US Treasury has indicated that it could increase its long-end purchases by significantly more than the doubling to around $4 billion per event announced last week.

Meanwhile, some observers have suggested that yet another blowout set of NVIDIA earnings, released after last night's close, could encourage investors to shift funds back out of cryptos and back into semiconductors and other AI-adjacent players. There's no evidence of that happening yet.

Strong earnings from Nvidia and Salesforce should support the bullish case, although this appears confined to tech. Best Buy and Gap report today providing another insight into the strength, or otherwise, of the US consumer. Meta has settled a social-media lawsuit with California and other states for $16.7 billion, while weekly jobless claims round out an otherwise quiet data day.

The Jackson Hole symposium kicks off today in the US, where business leaders and Fed officials gather to talk shop for a few days. Iran and Oman appear to have reached a revenue-sharing arrangement over the Strait of Hormuz. The UK has a holiday this Monday, with the US following the Monday after.

Markets waited patiently for Nvidia and were not disappointed, with stellar numbers and an equally strong outlook.  Options markets had priced a near 5% swing in the stock and were just about spot on. Salesforce should help the Dow today too. Elsewhere there's not a great deal to report, with all eyes now turning to Fed Chair Warsh in Wyoming tomorrow.

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