Move on

Investors on Thursday quickly shrugged off the initial disappointment from Nvidia’s quarterly report, which hinted at a slower growth rate for AI demand. The company still posted 56% year-over-year growth, though data center revenue came in flat to slightly lower. Some analysts pointed to Meta’s decision to slow AI spending, raising concerns that other big players could follow if returns don’t materialize as expected. On the brighter side, Nvidia’s results and guidance excluded any contribution from China, meaning any potential access would provide further upside. Sentiment was also buoyed by 10 firms raising their 12-month price targets after the report, lifting the average by 3% to $202.60 per share. After a volatile session that saw the stock test its all-time high, shares closed just 0.79% lower. In short, Nvidia’s latest report didn’t trigger a meaningful negative reaction — the fairy tale continues.

Broadly, S&P 500 companies delivered a far stronger Q2 than expected, with earnings growth near 12% versus 4–5% anticipated at the start of the season. Federal Reserve (Fed) expectations have softened markedly since the beginning of August, clearing the way for further equity gains. The index set yet another record yesterday — its 20th since the end of June when intraday highs are included — despite mounting worries over a weakening jobs market.

Thursday’s Q2 GDP revision added to the optimism: the US economy rebounded 3.3%, real final sales rose 6.8%, and core PCE inflation steadied near 2% annualized. Big-cap earnings remain robust, while smaller firms — currently pressured by tariffs — are likely to benefit from rate cuts as tariff-related inflation hasn’t yet filtered into the Fed’s preferred metrics. Markets expect the Fed’s core PCE index for July (due today) to tick up to 2.9% YoY. That would keep inflation sticky above the 2% target, but with attention shifting toward softening labour data, anything short of a major upside surprise is unlikely to derail expectations for a September cut, followed by another by year-end. That outlook remains supportive for equities.

In FX, the US Dollar has been pressured this year by trade tensions and now by dovish Fed bets. Still, if inflation stays contained while growth remains firm, the dollar could rebound. While a stronger dollar might weigh on equity valuations, the prospect of Fed easing should dominate.

However, there is no guarantee that inflation will remain contained. From today, the US will end the “de minimis” exemption that allowed packages under $800 to enter tariff-free. Nearly 1.4 billion such parcels entered in fiscal 2024 — about 3.7 million a day — fueling e-commerce growth at firms like Amazon, Shein and Temu. Temu has already reported a sharp drop in demand. The policy shift could lift prices for low-value goods and add upside pressure to August CPI, just as the Fed begins cutting rates — potentially complicating the easing cycle. For now, though, the outlook remains cautiously positive.

In Europe, preliminary August inflation data from major economies are due today and are expected to show some upside pressure. That, together with reduced trade uncertainties, could prompt the European Central Bank (ECB) to pause cuts in September. A potential US-EU deal could also reduce tariffs on European carmakers from 27.5% to 15%, offering relief to the sector. Still, euro bulls face headwinds from French political instability and a widening French-German yield spread, with EURUSD hovering near its 50-day moving average and offers into the 1.08 level.

Elsewhere, USDJPY is testing its 50-DMA to the upside after data showed slower inflation alongside weaker-than-expected sales and production data. The pair’s downside potential remains uncertain as slower inflation could give the Bank of Japan (BoJ) more time before hiking rates.

In energy, US crude again failed to clear the $65/barrel level this week. A 2.3-million barrel draw in US inventories and stalled Ukraine peace talks keep downside limited, while geopolitical risks raise the odds of a temporary spike toward the 200-DMA near $68. Meanwhile, the SPDR Energy Fund climbed to its highest level since April on the back of strong GDP data. Looking ahead, persistent inflationary pressures could channel more capital into dividend-paying energy names.