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The markets were calm yesterday, the European stocks extended gains, while the S&P500 and Nasdaq consolidated a bit lower than their ATH levels. A $69bn sale of US 2-year debt went well, the US 2-year yield extended losses and the US dollar rebounded from the lowest levels of the year. Crude oil, which rallied to its 200-DMA on mounting tensions in Middle East and Libya, failed to break offers at this level and fell nearly 2% as most traders brought the global growth concerns and the sluggish Chinese recovery back on the table. The barrel of US crude eased to $76pb level and is consolidating near this level this morning. We will probably have another calm trading session today, as investors will not be willing to move mountains before they see the latest results from Nvidia, that are due to be released today, after the closing bell.

The expectations for Nvidia’s Q2 results are sky-high, of course. In numbers, Nvidia’s own revenue forecast is a whopping $28bn of sales in the Q2 of this year. That’s more than the double of the money the company made a year ago And the market expectations are even more than that: they range between $27 and $32bn.

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The week started on mixed feelings. The rising geopolitical tensions in the Middle East, and between the West and China, and a pullback across the big technology stocks casted shadow on the optimism that the Federal Reserve (Fed) is about to start cutting the interest rates in September.

The US yields and the dollar rebounded on Monday. Crude oil jumped on the tense geopolitical environment in the Middle East and on rising tensions within Libya.

In China, the market selloff continues; the CSI 300 index trades at the lowest levels since February. Canada announced that it will impose tariffs of 100% on Chinese-made EVs and 25% on steel and aluminium to protect its domestic manufacturers. The Chinese e-commerce giant PDD – the owner of Temu – plunged nearly 30% on Nasdaq and recorded its biggest one-day lost ever, after the company warned of slowing sales as the competitors like Alibaba also increase efforts to attract budget-aware customers. Zooming out, KraneShares CSI China internet ETF posted its worst weekly outflow in 2 years, as investors moved money into EM bonds on Fed rate cut bets.

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‘The time has come for policy to adjust, and the direction of the travel is clear’ said Federal Reserve (Fed) Chair Jerome Powell at his Jackson Hole speech on Friday and kept the door open for large cut bets. US yields and the dollar softened, equities rallied. All eyes are on the US GDP update and the core PCE data, before next week’s all-important jobs report.

Elsewhere, the Eurozone countries will reveal their flash August inflation numbers and any softness in European inflation figures could revive the European Central Bank (ECB) doves and balance out the dovish Fed expectations.

In energy, Us crude gained on Friday along with risk assets, and bulls are joining in this morning on news that Israel has declared a 48-hour state of emergency after launching a pre-emptive strike on Hezbollah sites in Southern Lebanon, in anticipation of a response to last month’s assassination of its military chief.

In individual equities, Nvidia earnings are due after the Wednesday’s closing bell, and the expectations remain sky-high.

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US stock markets sold off yesterday, as investors trimmed their long positions walking into Federal Reserve (Fed) Chair Jerome Powell’s Jackson Hole speech due later today – where he is expected to douse the jumbo rate cut expectations. US yields and the dollar rebounded, equities fell. There is more room for correction as the swap markets still price in 95bp cut from the Fed, and this pricing looks overstretched.

We are all holding our breath into Powell’s speech. What has been a calm week could see a last minute volatility. Powell will probably not show up with a game-changing speech today, but his words should temper overpriced cut expectations. If that’s the case, we shall see the US dollar rebound from oversold levels, yet appetite in stocks could remain intact with prospects of lower rates into the year end.

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The combination of dovish Fed minutes and the big downside revision to the annual payrolls number (-818K jobs!!) sent the US yields lower and the dollar lower yesterday. Gold consolidated near the $2500 per ounce as the risk on environment directed capital toward the stocks rather than the safe haven gold, while crude oil extended losses to the lowest levels since August despite a 4.6-mio barrel decline in US oil inventories last week.

What’s interesting is, about three weeks ago, when the US had released weak jobs data, the US dollar had fallen on the rising recession odds for the US and the stocks had fallen as well but yesterday, the equity market’s reaction to the BLS revision was completely different: they gained!

Walking into the meeting, the swap markets are back to pricing in a 100bp cut from the Fed before the end of this year. The latter implies a jumbo rate cut at one of the last three FOMC meetings of the year. And because a jumbo rate cut wouldn’t arrive unless there is a deeper economic and financial trouble, the market pricing of the moment is unsustainable for either the US dollar – which has gone too low with the expectation of a 100bp cut, or the stock markets – which have gone too high with the same expectation disregarding the fact that economic trouble is never good for profitability.

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There was no major news on the wire to trigger the minor selloff in global equities, so it was nothing else than a correction after a long rally following an ugly meltdown.

The US dollar index took another dive, however, and hit the lowest levels since the beginning of January. The EURUSD spiked past the 1.11 level, Cable jumped past the 1.30 psychological mark. Even a dovish statement from the Riksbank and soft inflation numbers from Canada couldn’t prevent the US dollar from extending gains against the Swedish krona and the Canadian dollar. As such the Us dollar is oversold. Gold is nearly overbought at ATH levels and the levels call for correction!

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The week kicked off on a positive note on expectation that when Federal Reserve (Fed) Chair Jerome Powell speaks at the Jackson Hole meeting on Friday, he will deliver a strong hint that the rate cuts will begin soon in the US. Both the Big Tech and small companies in the US gained with the thought of an approaching rate cut in the US. Even the energy stocks had a good session despite a heavy selloff in crude oil, which was triggered by the news that Israel accepted a ceasefire proposal in Gaza if Gaza says yes.

In individual stock news, AMD announced to buy ZT Systems to increase ‘its capabilities and expertise to optimise solutions at the systems, rack and the data center levels’ to compete with Nvidia. AMD jumped 4.5%. The news didn’t tame appetite for Nvidia, which also rallied more than 4% and closed the session at $130 per share. Even Intel gained yesterday.

Elsewhere, the European Stoxx 600 also opened the ween on a positive note and jumped above the 50 and 100-DMA, and the Japanese Nikkei 225 is better bid today after a moody Monday on a yen rebound. I expect the market mood to remain mainly optimistic into the Jackson Hole meeting with no major data points to hamper optimism. The US dollar remains weak – too weak – into that speech, the EURUSD consolidates gains near 1.1080 before today’s CPI read and Cable tests the 1.30 offers supported by relatively strong fundamentals. Actually, the UK printed the best GDP growth among major economies – including the US – in the first half of the year!

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The market mood got a further boost yesterday after the latest data release from he US hinted that the economy is not doing that bad, after all. The US yields and the dollar rebounded, stocks and crude oil gained.

Investors are now going back to the soft-landing dreaming and that will – along with the rising JPY carry trades – should help the markets close the week on a positive note in Europe and the US.

Things look less rosy for China though. Although Alibaba and JD.com are in a better shape today, the Q2 results were less than ideal and the latest data from China was less than appetizing. And the sluggish Chinese growth keeps oil and metals under pressure and counters the reflation vibes.

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