Financial Markets Weekly Guide

LONDON (Reuters) – The latest earnings from AI darling Nvidia (NASDAQ:NVDA) and key inflation numbers in the euro area and Australia should keep markets busy in the coming week.

Gold’s relentless climb to record highs and a dollar under pressure as U.S. rate cut speculation builds are also in investors’ sights.

Here’s your guide to the week ahead in 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’RE UP

Investor enthusiasm for artificial intelligence could be tested when chipmaker Nvidia reports earnings on Aug. 28. Nvidia’s chips are seen as the gold standard in the AI space, and its shares are up around 150% this year, helping to power the S&P 500 to record highs.

However, the stock’s stunning multi-year run and the AI-mania have drawn comparisons to the dot-com craze that imploded more than two decades ago. Investors’ reaction to disappointing results from megacap names such as Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) last month suggests markets may not be in a forgiving mood, especially when valuations for many companies in the sector are stretched.

Data highlights meanwhile include Friday’s U.S. Personal Consumption Expenditures (PCE) price index, a key inflation gauge tracked by the Federal Reserve.

2. WHEN SEPTEMBER COMES

August euro zone inflation numbers on Friday will be key to European Central Bank policymakers deciding whether or not to cut rates in September. The data, preceded by national releases starting on Thursday, follows a small but unexpected rise in July, highlighting a bumpy last mile in curbing inflation.

Although headline inflation may ease as oil prices have fallen, focus will remain on the core figure and the dominant services sector, where price growth remains persistently high. Any upside surprises may warrant caution, as traders have ramped up ECB rate cut bets in recent weeks. Focus has turned to growth risks, but euro zone business activity showed surprising strength in August.

Traders fully price in another 25 basis point rate cut on Sept. 12, and see a high chance of two more moves after that by year-end.

3. HIGH STAKES

The stakes are high for the Reserve Bank of Australia (RBA), which has insisted that interest rates need to stay restrictive for an “extended period,” as underlying inflation remains too high for comfort. Wednesday’s July inflation numbers could show headline inflation diving back into the RBA’s 2-3% target band for the first time in three years.

Any signs that inflation pressures are abating could pile pressure on the central bank, particularly as it has become an outlier globally with a reluctance to lower rates while many peers look to begin or have already started easing cycles.

Investors are also hoping that Wednesday’s data could provide some relief to consumer sentiment, which has taken a hit from the burden of steep borrowing costs. Elsewhere, Tokyo’s August inflation report on Friday potentially offers further clues on Japan’s rate outlook.

4. EURO BULLS

The euro is at its highest this year against the dollar, benefiting from recent fluctuations in global markets. Diverging U.S. and euro area rate expectations are behind its gains. Traders price around 100 bps of Fed rate cuts by year-end, up sharply from before the latest U.S. payrolls data, while only fully pricing two more 25 bps ECB cuts.

The question remains whether the euro, also at its highest on a trade-weighted basis on record, can sustain its momentum. Germany’s business activity contracted by more than expected in August, which is a negative sign for Europe’s economic engine, while euro zone wage growth slowed last quarter, supporting the case for an ECB September cut. Euro bulls are typically cautious, suggesting more convincing evidence of the euro’s rebound is needed before they act in force.

5. ALL THAT GLITTERS

Gold has reached consecutive records since 2022, surging over 20% so far this year, now eyeing $3,000 an ounce. The stars have aligned for this precious metal, primarily used to preserve wealth during times of heightened security risks, political, and economic turmoil.

Russia’s war on Ukraine triggered gold’s rally in February 2022, and soaring commodity prices afterward fueled inflation, which erodes the value of monetary assets. Middle East tensions and uncertainty from the fast-approaching U.S. Presidential election have further bolstered gains.

The prospect of U.S. interest rate cuts reinforces the buy bullion trade, putting pressure on the U.S. currency and making gold more appealing due to its negative relationship with the dollar. Yet, gold bulls should remember the old adage that “nothing goes up in a straight line” and that markets typically “buy the rumor, sell the fact.”