Meanwhile, stock markets will be held in thrall to today’s results from chip giant Nvidia. Chip stocks recovered their poise on Tuesday ahead of the report, which options markets reckon could see a swing of about 5% either way.
The consensus forecasts for Jenson Huang's $5 trillion firm are expected to be very impressive, as the AI story has delivered elsewhere in this bumper earnings season. Nvidia is expected to report a doubling of revenue over the past year, with full-year estimates topping $100 billion. But the bar is as high as ever, and markets have gotten used to Nvidia beating estimates. Let’s see.
Oil’s decline eases pressure on markets
While the continuing retreat of world oil prices on Wednesday is something of a puzzle given the bellicose rhetoric from Washington and Tehran, it’s had a powerful cushioning effect for antsy world bond markets. Meanwhile, investors are set to learn more about the health of the AI ecosystem when Nvidia reports after the bell.
Brent crude futures fell for a third straight day on Wednesday, sliding more than 2% to roughly $86 per barrel on the prospect of more supply coming through the Strait of Hormuz. If this move is sustained, it would amount to the biggest weekly drop in oil prices since June.
The optimism appears to be rooted in the belief that the kinetic war may be on hold now that Washington has shifted its focus to economic sanctions. Markets were cheered by news that talks have resumed between Oman and Iran about how to make the Gulf navigable again - at least temporarily.
While official data on traffic through the strait suggests not a lot of oil is getting through, there are claims - including from U.S. Energy Secretary Chris Wright - that a significant amount is exiting, as ships travel with their transponders turned off. Whatever the reality, oil prices have calmed down, even though costs for refined products like diesel and other fuels remain sky high. This positive noise out of the Gulf has helped support another heavy week of Treasury auctions.
Rubin chips, AI spending and competitive pressure
Chart of the day
Nvidia results on Wednesday will test whether the company's latest Rubin chips can drive another period of explosive growth, with some investors questioning the sustainability of the AI spending boom. A successful ramp-up of its Rubin chips is crucial as Nvidia faces growing competition from Big Tech's custom chips and central processors from Intel INTC.O and AMD AMD.O in inference, the process by which AI automates tasks and responds to queries. Morgan Stanley estimates these chips could contribute nearly $9 billion in sales in the third quarter ending October.
The chipmaker has been the biggest beneficiary of the race to build AI infrastructure, but its stock price has recently come under pressure as the firm has pumped billions of dollars back into the AI ecosystem. This has stoked fears about its role in so-called circular deals and financing pools that could artificially inflate chip demand.
Inflation data, weak consumer readings and Fed focus
On the macro front, we'll get another inflation update later on Wednesday with the July PCE data. It's expected to show annual headline and core inflation rates still above 3% and well above the Fed’s 2% inflation target.
While some Fed-watchers expect PCE data revisions in September to trim these inflation figures, the new report will likely still be uncomfortable reading for Federal Reserve Chair Kevin Warsh before his keynote speech on Friday at the annual Jackson Hole conference.
In the background, U.S. consumer confidence fell again this month according to the latest survey and new home sales were down sharply too.
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