Risk appetite has taken a nosedive this week, even before we get to the two events which pose as potential lighting rods for more volatility - namely Nvidia’s earnings and the belated payrolls report. Concern over AI valuations and worries that we may not see another Fed rate cut this year have put stocks on the backfoot, with traders inclined to take risk off the table. The S&P500 index is down 3.5% over the last five days, while the Nasdaq has lost more than 4% in the same period.
With the tech sector getting a case of the wobbles to say the least, the burden again falls on Nvidia to try and reassure the market that the AI train remains firmly on track. The tech darling has a history of surpassing earnings expectations (having beaten estimates for twelve straight quarters), so it is with bated breath that traders wait to see if that trend continues. Expectations are that the tech giant will report quarterly revenue of approximately $55b with EPS (Earnings Per Share) of around $1.25.
But even of Nvidia hits these numbers, that may not be enough to calm market nerves given the extra scrutiny facing tech sector spending. Arguably, it will be the company’s forward guidance that will dictate whether the current pullback in tech stocks has run its course or if there is more downside to come. Essentially, the upcoming Nvidia earnings report could either exacerbate or stem the bleeding for tech shares. Nvidia will release its results after the US market close on Wednesday.
Turning to FX, the Dollar continues to ride high against the yen. The USDJPY rate has climbed 3% over the last month due to doubts about when the Fed may next cut rates and expectations for fiscal stimulus in Japan. Further upside could be constrained by the prospect of a potential BOJ (Bank of Japan) rate hike next month and questions over whether the yen is starting to get too weak for Japanese authorities. I don’t think we are at the point where intervention is imminent, but further weakness could prompt such a move. That is because, while a weak currency can help the export sector of a country, at some point it also leads to imported inflation, which is probably the last thing the BOJ wants with CPI already running sustainably higher than its 2% target.
Gold has somewhat had its momentum thwarted by the stronger USD and doubts about when the next Fed rate cut may arrive. The precious metal has fallen back from its $4200 handle from last week, however a bout of risk aversion in the market has kept gold in the frame for investors as a safety play, which has limited the slide. Spot gold trades at around $4069 currently, ahead of support at $4020 which if broken, could see the price dip back below the $4k level. Sturdier support awaits at $3974 and further back at $3890. On the topside, resistance at $4111 would need to be overcome to open a potential run back towards $4200. Gold could continue to trade in choppy fashion in the near-term while the market wades through the backlog of US economic data in the coming weeks ahead of the key Fed decision on rates next month. The longer-term outlook still looks healthy however, so long as the market expects the Fed to remain dovish in 2026.
In addition to Nvidia’s key earnings report, the other marquee event on the calendar this week is the long-awaited release of September’s Non-Fram Payrolls (NFP) report. With the US government shutdown ending after 43 days, the wheels of government are getting back up and running and with that comes the release of a backlog of economic data. Prior to the shutdown, the NFP trend was soft, with a rolling three-month average of just 40k (for June, July, and August). This week, the forecast is for around 55k jobs to have been created in September when the NFP report is released on Thursday. But if the NFP report produces a miss to the downside, it may nudge market expectations back in favour of expecting a Fed rate cut next month. Conversely, a strong NFP print could dull hopes of a rate cut, which could further sour the current mood of risk assets. Suffice to say, the outcomes of the Nvidia earnings and the NFP report will have a big say in whether stocks can reverse the current form slump.
