This week in the markets - all eyes on Nvidia

The final week of summer - caught between public holidays in the UK and US - is often a quiet one in the markets. So, a handful of news items will attract even more attention than usual.

Where next for Nvidia?

The biggest corporate event of the week will be Nvidia’s latest quarterly earnings release. Three months ago, the AI-chip maker unveiled a breath-taking 262% increase in revenues, with the promise of more to come as a new line of chips is rolled out this year.

On Wednesday we will get the latest update from the company, and the bar will be harder than ever to clear as expectations for Nvidia are ratcheted higher.

The results announcement is likely to be seen as a major market moving event, given that Nvidia now accounts for 6% of the value of the entire S&P 500 index. This follows a more than ten-fold growth in the company’s share price since the launch of the ChatGPT AI application in November 2022.

Nvidia’s shares have been the cause of much of the market’s volatility over the summer. Between July and August, the company’s value fell by $750bn before regaining all the losses in a handful of trading days.

The big question for Nvidia investors is how well its big customers - other tech companies like Meta, Amazon, Google and Apple - are able to earn a return from the billions of dollars they are currently spending on Nvidia’s chips. Any doubts about how, and how quickly, they can monetise that investment could rapidly dent their currently unbounded appetite for the company’s products.

Inflation watch

Meanwhile, the other big market moving story - inflation - gets an airing this week too. Over in the US, Friday’s unveiling of the Fed’s preferred inflation measure - the personal consumption expenditures index - will be the first data point to follow dovish comments last week from Fed chair Jerome Powell.

Speaking at the Jackson Hole economic symposium in Wyoming last Friday, Powell made his most unambiguous comments to date about the likelihood of an interest rate cut at next month’s rate-setting meeting. He said that ‘the time has come for policy to adjust’. Markets read that as pointing to a quarter point cut in mid-September with more easing to come before the end of the year. US interest rates stand at a 23-year high of between 5.25% and 5.5%.

Inflation is on the back foot on this side of the Atlantic too. Economists expect eurozone inflation to fall to 2.3% in August, down from 2.6% in July and the lowest rate of price increases since 2021. The ECB is also forecast to cut rates by a quarter point in September. Here in the UK, inflation is back at target and this week the British Retail Consortium said shop prices were falling year on year for the first time in three years.

Safe havens

In other markets, the focus is on rising geo-political tensions, which are providing a boost to both the oil and the gold prices.

Oil rose from its summer doldrums over the weekend after Israel launched pre-emptive strikes against Iran-backed Hezbollah in southern Lebanon. Retaliatory strikes from north of the border raised the prospect of an escalation of the ongoing Hamas/Israel conflict into a wider regional war. Bringing Iran into any broader conflict could have significant economic implications if the free passage of oil through the Strait of Hormuz were threatened. At the same time, the announcement by the government of eastern Libya that it was temporarily suspending oil production underscored the fragility of global oil supplies in an increasingly unstable region.

Finally, gold continues to change hands at an all-time high price of over $2,500 an ounce. Gold has risen from just over $1,800 an ounce since last October on the back of hopes for lower interest rates, a weaker dollar and growing geo-political tensions. Lower interest rates boost gold because they reduce the yield on rival assets, cutting the opportunity cost of holding the precious metal, which pays no income to investors. A falling dollar is good news because it reduces the cost of the metal to buyers using non-US currencies. Rising tensions increase the appetite for gold, which is seen as a safe haven in troubled times.

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