Last week in financial markets was all about the hard data, notably in the form of inflation figures. In contrast, this week the focus has been about rhetoric from Federal Reserve officials, or ‘Fed Speak’ as it is commonly referred to. And by and large, the messaging from Fed officials has been one of preaching the need for patience with regards to potential interest rate cuts. So, whilst last week’s softer CPI reading for the April period was a boon for risk assets hoping for a rate cut to be brought forward, this enthusiasm has been tempered by Fed officials who seem happy to stand pat for the time being. That’s because it remains to be seen whether the relatively tepid April data was just a blip or the start of a new trend lower in inflation.
The Nvidia Q1 earnings release is the big event of the week (due Wednesday afternoon, US time). The stock has increased 98% in value so far in 2024, and investors will be wanting to some bottom-line earnings which justify the meteoric rise. Though the outlook provided by Nvidia may be just as important as the latest earnings figures themselves, with investors trying to ascertain just how long Nvidia will enjoy the fruits of its first-mover advantage. If Nvidia can produce a beat for Q1 earnings and provide a rosy outlook for the AI landscape, the tech-driven rally may take another step higher. Conversely, if Nvidia happens to miss the mark, investors will have a reason to take some profit which could see indices turn south from record highs (for the major US indices).
Gold has been solidifying its stay above the $2400 level this week, with investors remaining keen on the precious metal ahead of a potentially looser interest rate environment later in the year. During Asian trading hours on Wednesday, spot gold was trading steadily (at $2422) amid limited moves in the Dollar Index and treasury yields. Earlier in the week, gold made a run higher towards resistance at $2450 which proved to be a hurdle. If gold is to make another run in the direction of $2450, moderate resistance at $2436 will need to be cleared first, while on the downside support awaits at $2408 and $2394. Fundamentally, the outlook remains constructive for gold whilst central bank buying underpins demand. Though for gold to hit fresh record highs, a pullback in the USD and/or bond yields, or an increase in safe-haven demand, may be required.
The cautious tone of Fed officials has stabilised the US Dollar Index (DXY) this week. The DXY has been hovering around 104.60, ahead of support at 104.46 and below resistance at 104.76. Elsewhere, US crude oil has eased to $78 per barrel due to a lack of fresh catalysts. Key levels to watch include support at $77.50 and $76.80, while on the topside resistance at $80 would need to be cleared to enable further gains.
On the economic calendar, the FOMC meeting minutes (due Wednesday) will be closely watched for any further clues regarding the rate cutting timeline, while US Durable Goods orders and Consumer Sentiment data (due Friday) could impact the USD. But in the meantime, Nvidia results loom as being the major shaper of investor sentiment.
