Caution has left Asian equities wavering before what is sure to be a closely followed set of results from Nvidia, even if a new drop in oil has calmed some inflation nerves. You can see the fragility in risk assets as US equity futures soften; traders are deciding if the AI trade will reassert itself or come due for a reset.
The hesitation was plain in the US contracts. Nasdaq 100 futures were down 0.3% and the S&P 500 edged 0.1% in the other direction. On the commodity side, Brent crude gave way and benchmark Treasury yields slipped to 4.63%, suggesting a belief that softer energy costs will put the brakes on price pressures.
AI trade faces a credibility check
Nvidia's earnings are the week’s defining moment, a bellwether for sentiment after some profit-taking in chipmakers. Analysts have the chip giant’s revenue at $92 billion for the last quarter, almost double the year-ago figure. That is a tall order for tech valuations predicated on AI enthusiasm.
Even with strong showings from AI names of late, buyers have been choosy. “We are anticipating good news here, but so is everybody,” says Mark Malek of Siebert Financial, noting that “Nvidia is operating on all cylinders and they are doing absolutely everything correctly.” The risks are as high as the expectations.
Then there is the matter of monetary policy. Once the data comes in, the US personal consumption expenditures price index – the Fed’s gauge of choice for inflation – will be in focus. And on Friday, Chair Kevin Warsh will have his turn at Jackson Hole to perhaps put some new guidance on rates.
Asia reacts unevenly as oil retreats
There was no conviction in regional markets. MSCI’s Asia Pacific index was little moved, with South Korea and Japan seeing small gains and losses as traders steered clear of bold bets ahead of the week’s speeches and earnings.
Japan was a case in point: the Nikkei 225 lost about 300 points, or half a per cent, while the TOPIX inched up 0.26%. In Seoul the KOSPI turned red as early strength dissipated, though India’s GIFT Nifty suggested a more constructive open.
The pullback in energy has been a stabiliser for rates. With Iran and Oman talking an ‘interim framework’ to get shipping moving again through the Strait of Hormuz, Brent fell 1.7% to the $87 mark. That in turn saw 10-year US yields drop seven basis points to 4.63% on Tuesday, a pattern repeated in Australia, New Zealand and Japan.
What sliding oil means for risk assets
After weeks of stubborn inflation and high yields, cheaper oil has let risk appetite have some room to breathe. Kyle Rodda of Capital.com puts it this way: “the easing of geopolitical risks and subsequently lower oil price has been enough to offset the trepidation” even with the event risk casting its shadow over things.
Defensive hedges held their own. Gold was steady around $4,655 an ounce after a five-day run, and Bitcoin was in the vicinity of $78,500. It is a message of relief on the inflation front, but there is no hurry to put money into high-beta trades until the Fed and Nvidia make their intentions known.
Key signals to track this week
Investors are keeping a close watch on these markers:
– Nvidia and AI momentum when results are out Wednesday
– The US PCE price index to confirm the inflation story
– Policy cues from Kevin Warsh at Jackson Hole on Friday
The consumer picture is another variable. August data had US confidence at a seven-month low as perceptions of the labour market and business conditions waned. “Consumers are optimistic about today but increasingly nervous about tomorrow,” according to Jeffrey Roach of LPL Financial.
“Although employment conditions remain solid, fading expectations for income growth may act as a headwind to spending,” he added. Should that caution take hold, earnings sensitivity could increase at a time when the market is counting on AI to prop up multiples.
Trade tensions and currency moves
Currencies have been quiet for all the undercurrents in trade. The Canadian dollar was firm after Prime Minister Mark Carney put in place support for businesses hit by the dispute and met President Donald Trump’s latest tariffs. Washington is now considering further action in response.
In Asia it is a question of semiconductors, policy and oil. While cheaper crude is a boon for importers, any misstep in AI leadership would put pressure on the tech benchmarks. Positioning is tight going into the event risk, so do not be surprised if a small surprise from Nvidia or the Fed causes an outsized reaction.
For the trader, it all comes down to two things. Will Nvidia’s figures justify the AI investment? And will the week’s policy signals leave disinflation and rate hopes intact? If not, sessions will be choppy and liquidity will command a premium.
