Headlines

* US dollar retreats, sterling hits more than two-year high

* Dollar recovers as selling pressures ease for now

* Gold closes at record high as yields consolidate near lows

* JD.com announces $5bn share buyback plan

FX: USD slipped below major support from the late December low at 100.61. Consumer confidence was better than expected, while average 12-month inflation expectations dropped to 4.9% in August, the lowest since March 2020. Attention is on Nvidia results, weekly initial jobless claims data on Thursday and the core PCE figures on Friday.

EUR consolidated near recent highs printing an inside day. Final Q2 German GDP was unchanged from the preliminary data and once again showed a grim picture for the bloc. There were mixed comments from ECB officials with a known hawk wanting more data to take a view on a September rate cut. That is a near certainty according to money markets.

GBP outperformed hitting a peak at 1.3266. The bull trend looks overbought with near-term support around 1.3179.80.

USD/JPY underperformed as yields edged very marginally higher. But prices closed on their lows having earlier pushed up to 145.17.

AUD tracked sideways again for a second day, just below recent highs still under 0.68. Focus is on the CPI data released today. USD/CAD sold off for a third straight day, through support at 1.3475. That is a retracement level (61.8%) of the 2024 move up. General dollar weakness accounts for some of the recent move lower. But position adjustment (CAD short covering) is also a likely driver of the loonie’s current strength.

US Stocks: US markets finished mixed again, but with the Dow this time underperforming. The benchmark S&P 500 settled up 0.16% at 5,626. The tech-dominated Nasdaq 100 finished higher by 0.33% at 19,582. The Dow Jones closed up at 41,250. Tech and financials led the gains while energy and utilities were the laggards. The Microsoft CEO sold 14,000 shares at an average price of $417 last Friday. Hindenburg Research disclosed a new short position in server maker Super Micro. Naturally, all eyes are on Nvidia’s earnings released after the US closing bell on Wednesday.

Asian stock futures are in mixed. Asian stocks traded mostly lower with few drivers and a mixed handover Stateside. The ASX 200 closed roughly flat after initial gains petered out. The Nikkei 225 moved off its lows as the yen weakened in a tight range. The Hang Seng and the Shanghai Composite were both muted with the former nursing heavy losses in Alibaba and JD.com.

Gold closed a whisker away from last week’s record high at $2531. Dollar softness helped, though geopolitical news was thin on the ground.

Day Ahead – Australia CPI and Nvidia results

The headline number is expected at 3.4% in July, down from the prior 3.8%. This is impacted by the unwind of large electricity subsidies across the country. More important will be the other CPI basket items that are only measured in the first month of the quarter. Goods inflation and sticky housing prices will be watched. The most recent RBA minutes painted a relatively hawkish picture with Governor Bullock also backing this up more recently. She said the bank is ready to raise rates if needed and that the pricing of cuts for the next six months does not align with the board.

Consensus expects Nvidia to report EPS of $0.63 per share, on revenues of $28.35bn. The giant chipmaker is forecast to guide Q3 EPS at $0.69 and Q3 revenue at $31.18bn. For the full year, Nvidia is projected to guide EPS around $2.70 and revenue of $120.14bn. Investors are likely to focus on two things. Firstly, the near-term outlook for revenue, and secondly, if its next-generation AI chip, the new Grace Blackwell 200 chip, is on track to launch in the first quarter of 2025 after a recent delay due to a design flaw. Guidance on this delivery and order backlog will probably be more important than current sales and revenues.

Chart of the Day – Nvidia hovering and likley to breakout strongly

It seems that anything less than another Nvidia beat and guidance raise will prove to be a disappointment, with a shock miss hurting the wider bullish momentum in risk assets. With the stock up over 150% this year alone, the pressure is on the AI megacap to deliver. The chipmaker has beaten estimates six quarters in a row and has only missed twice in the last five years.

To gauge the potential market moves, options markets are seeing an implied move on the day of reporting at +/-10%. Levels to watch include the all-time high at $140.76 and the August low at $90.69, with near-term Fib retracement levels at $121.63 and $130.05. Of course, the estimated level of volatility for a company with a $3tn market cap could have significant implications, not only for Nvidia’s share price but also other AI and megacap tech names, plus the indices as a whole. The chipmaker accounts for more than 6% of the benchmark S&P 500 and one investment bank calculated that its earnings release has a 78% correlation with the broader market direction over the next two weeks.