Market Highlights for the Week: Nvidia, Inflation, Gold

The rally in U.S. markets will come under scrutiny this week when chip manufacturing giant Nvidia’s (NVDA) results are released. U.S. inflation data is likely to bolster expectations for long-awaited rate cuts, while the Eurozone and Australia will also release inflation data that will influence the path of interest rates. Here is a summary of what will happen in the markets this week. 

Nvidia Results 

After the close on Wednesday, Nvidia’s results could challenge investors’ enthusiasm for artificial intelligence.  

The earnings report, coupled with guidance on whether it expects corporate investments in AI to follow, could be a key turning point for market sentiment at a time of historic volatility. Nvidia shares are up about 150% so far this year, which accounts for a quarter of the S&P 500’s 17% year-to-date rise. However, the impressive multi-year streak and AI mania have also prompted references to the dot-com bubble that burst more than two decades ago.

The data comes at the end of an earnings season in which investors have been less tolerant of tech companies whose profits have not justified high valuations or huge spending on artificial intelligence. These include Microsoft, Tesla and Alphabet, whose shares have declined since their July reports. 

U.S. Data

The highlight of the economic calendar will be Friday’s Personal Consumption Expenditure (PCE) price index, the Fed’s favorite inflation gauge. Speaking at the Fed’s annual symposium in Jackson Hole on Friday, Fed Chairman Jerome Powell acknowledged recent gains in inflation and said, “The time has come to tighten policy.” «We do not see or welcome further weakening in labor market conditions,» Powell added in a speech that seemed to all but guarantee a rate cut at next month’s policy meeting, which would mark the first such cut in more than four years.

The economic calendar also includes a durable goods orders report on Monday and revised second-quarter GDP figures on Thursday, in addition to the weekly initial jobless claims report. 

Eurozone Inflation 

Eurozone inflation data for August, due Friday, will prove decisive for the European Central Bank’s interest rate decision in September.  

This report, which is released starting Thursday, follows a small but unanticipated rise in inflation in July, posing a challenge for inflation control. While headline inflation is expected to decline, thanks in part to falling oil prices, the focus will be on core inflation and the services sector, where price increases have been the most steady. Upside surprises in the data could lead to caution, especially considering that traders have increased their expectations for an ECB rate cut in recent weeks.  

Market expectations are largely in favor of a 25 basis point rate cut on September 12, with a high possibility of additional cuts through the end of the year.

Australian Inflation 

Australian July inflation figures, due on Wednesday, may show headline inflation within the Reserve Bank of Australia’s target range of 2-3% for the first time in three years.

Any sign of easing inflationary pressures could increase scrutiny on the central bank, which is seen as a global outlier for its reluctance to cut rates when many other central banks have begun or are contemplating easing cycles. Investors are also looking ahead to Wednesday’s data, which could help ease consumer confidence, battered by high borrowing costs.

In addition, Tokyo’s August inflation report, due Friday, may offer further clues on Japan’s monetary policy outlook.

Gold 

Gold has set consecutive record highs since 2022 and is up more than 20% so far this year, with $3,000 an ounce already in sight. 

The precious metal, traditionally considered a safe haven in times of heightened security risks and political and economic instability, has benefited from several converging factors. Russia’s invasion of Ukraine in February 2022 triggered an initial rally in gold prices. Rising commodity prices and the resulting inflation, which undermines the value of fiat currencies, further supported the uptrend. 

Ongoing pressures in the Middle East and uncertainty surrounding the upcoming U.S. presidential election also contributed to gold’s gains. In addition, expectations of interest rate cuts in the United States have put pressure on the dollar, making gold, which tends to have an inverse relationship with the U.S. currency, more appealing.

However, gold investors should be cautious, as markets often experience corrections, following the adage “nothing goes up in a straight line,” which aligns with the “buy the rumor, sell the news” trend.