Nvidia’s Q2 earnings were the most anticipated event on the calendar this week and for good reason, given the psychological importance of the stock to the broader market. And when looking at the earnings figures in isolation, they were hard to fault. After all, 122% revenue growth is not to be sneezed at and the outlook remains robust with Nvidia still enjoying the fruits of its first-mover advantage.
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Though the stock fell in after hours trading following the earnings release. Maybe there was just too much hype this time around for the tech darling. But with the Q3 earnings guidance still looking solid and big tech names continuing to devote investment into AI infrastructure, any Nvidia pullbacks will likely still be seen as buying opportunities.
With Nvidia’s Q2 earnings in the books, attention will now turn to the next key yardsticks for the US economy in the form of GDP and Core PCE Price Index data which are now on deck. If we happen to see a downside miss on either of these two data points, then investors will again start to entertain the idea of a potential half-percentage point cut from the Fed next month.
However, if the numbers come in close to the expectations (which is 2.8% in the case of GDP, and a 0.2% rise in Core PCE Price Index), then a tamer, quarter percentage point cut will remain the favoured option from the Fed to kick-off their monetary easing stage.
Gold and the USD have had contrasting performances so far this month. The Dollar Index has slid more than 3%, while gold has hit record highs, which illustrates the differing reaction of each asset to the impending easing of US interest rates. The Dollar Index (DXY) did manage a bounce of sorts mid-week however selling pressures continue to hound the greenback. This minor recovery in the USD proved to be a hinderance to the gold price which eased back from its weekly highs (to $2513 in Asian trading hours on Thursday).
The fundamental backdrop still looks supportive of gold, however there is a large amount of dovishness already ‘baked into the cake’ in terms of current levels for both the precious metal and the greenback. With more than 200bp of cuts expected between now and the end of 2025, markets are expecting the Fed to really ‘drop the hammer’ when it comes to the rate-cutting frequency once the easing cycle starts. As such, there is scope for a scenario where the Fed is not generating rate cuts at the same speed the market would like. We only have to cast our minds back to the start of 2024 to see how the market’s interest-rate expectations were not met with Fed actions, as inflation proved hard to budge. Maybe this time will be different though with CPI much closer to the Fed’s target level. We will find out in coming months.
For gold, levels to watch this week include support at $2492, while resistance sits at $2528 which would need to be breached for the price to reach fresh all-time highs. We will be watching for the US GDP and Core PCE Price Index data to see how this influences treasury yields, the USD and in-turn, gold.
