While it has been a positive week so far, market moves have been relatively subdued as investors look ahead to Nvidia’s earnings release. As the semiconductor giant at the centre of the AI investment theme, its results are expected to provide an important gauge of AI-related demand. Markets are also focused on the Jackson Hole Economic Symposium, with comments from Fed Chair Kevin Warsh later this week likely to be scrutinised for clues on the future direction of monetary policy.
As stated, investors keenly await Nvidia’s earnings report due after the market closes on Wednesday. Quarterly revenue is expected to almost double year-on-year to around $92 billion, while expectations for the following quarter are already approaching $105 billion. Of course, the latest results from the major technology and AI firms have been accompanied by continued debate over valuations and whether the huge sums being invested in AI will ultimately generate the returns investors are expecting. Nvidia is perhaps the clearest example of this, having found itself at the centre of many price swings around its earnings announcements in recent quarters, despite consistently beating expectations. Even so, the shares remain around 11% higher year-to-date.
Meanwhile, while the conflict between the US and Iran has not seen any major military developments this week, President Trump announced on Monday plans to sever Iran’s economic and financial ties with the rest of the world. Treasury Secretary Scott Bessent said that countries continuing to trade with Iran could face sanctions, including being cut off from access to the US financial system. Perhaps surprisingly, however, traders largely shrugged off the latest development. Oil prices edged lower, with brent crude dipping below $90 per barrel, with sentiment suggesting that investors viewed the proposed sanctions as less severe than initially feared and did not see them as posing a significant threat to the flow of oil through the Strait.
Over in Japan, rising debt costs have been in focus this week, with authorities expecting annual debt interest payments to increase by 17% by 2027. Despite this, there are clear signs of positive momentum within the private sector, with manufacturing activity showing its strongest momentum in years. The manufacturing PMI rose from 54.5 in July to 55.1 in August, comfortably above the 50 mark that separates expansion from contraction. Growth was supported by strong demand for AI and semiconductor-related products, with new orders increasing at their fastest rate since January 2018. Factories responded by increasing hiring and purchasing activity to meet stronger demand. The latest data may particularly allay fears from some market participants about the plans for fiscal expansion made by Abenomics-advocate Sanae Takaichi, suggesting that growth in the private sector may go some way to counterbalancing Japan’s debt burdens.
Still to come this week we have US GDP, PCE and jobs data, Japan’s unemployment rate and Eurozone consumer confidence.
Nicola Tune, Portfolio Specialist
