• Summary: Concerns about the trajectory of China’s economy and financial system and less-robust than anticipated response continue to dog sentiment in Asia. Jackson Hole and Nvidia earnings will also be key for sentiment this week, and Japanese yen still in focus with reports suggesting a large wage increase in Japan. Crude oil closed lower after seven straight weeks of gains.

Crude oil and gas: tight supply and LNG strike action in focus

Crude oil prices trade up for a third day, supported by tightness in the physical market as supply curbs from OPEC+ continue to support prices. In addition, a softer dollar has also helped offset growing demand risks in China and the US and a general loss of risk appetite as global stock markets continue to lose altitude. The focus of this week turns to PMIs and Powell’s speech at Jackson Hole on Friday. EU natural gas prices meanwhile trade back above €40/MWh as strike action at major LNG export facilities in Australia could begin as early as Sept. 2 if new talks between Woodside Energy Group Ltd. and union officials on pay and conditions fail to resolve disputes. Ballots are also taking place on potential walkouts by workers at Chevron Corp. facilities

Gold and silver: hedge funds exodus amid peak rate delay

Gold prices remain on the defensive amid the recent dollar and not least yield strength as the FOMC fight against sticky inflation raises the prospect of more rate hikes to come. Spot gold dropped to a fresh five-month low overnight at $1885 with focus this week turning to Fed Chair Powell’s Jackson Hole speech on Friday. Silver meanwhile receiving a helping hand from a recovering copper price with the XAUXAG ratio falling to a two-week low. As long as additional rate hikes remain the focus asset managers and other large investors will likely avoid bullion amid the current high opportunity/funding cost for holding gold relative to short-term money market products. Hedge funds cut their gold long by 38% to a six-month low in the week of August 15, while the silver net short jumped 78%.

Jackson Hole will be Powell’s test on dovishness rather than hawkishness

Risk sentiment took a beating last week on China concerns, but US inflation risks were also back on the radar amid strong economic data. While both of these themes will be put to further test in the markets this week, US focus primarily turns to Fed Chair Powell’s comments at the Jackson Hole symposium. The Federal Reserve’s Economic Policy Symposium in Jackson Hole, Wyoming, is scheduled for August 24-26 and Chair Powell speaks on Friday, August 25 at 10am ET. This year’s theme is "Structural Shifts in the Global Economy".

From recent commentaries, it appears that central bankers will keep the flexibility to hike rates further, while clearly avoiding committing to cut rates soon. However, a hawkish shock remains unlikely at this point and there will be little new signals for the September rate hike, given that there is more key data due ahead of that meeting. July PCE inflation data comes out on August 31 and nonfarm payrolls are reported on September 1, and these will hold the key to whether we get a September rate hike or not. Rather, the Jackson Hole symposium will be key to assess Powell’s dovishness meter. If he raises concerns on the economic momentum or the rising credit risks, that may prompt the markets to price in rate cuts to start earlier, and could be dollar negative.

Nvidia's Upcoming Earnings Report: A Crucial Juncture for AI Stocks Amidst Soaring Demand

This Wednesday's earnings from Nvidia after the close of the US market are poised to serve as a pivotal moment for the markets, particularly for the cluster of AI-related stocks that have experienced substantial gains throughout this year. Analysts are anticipating revenue to reach $11 billion, marking a remarkable 65% year-over-year increase. Additionally, the projected EBITDA stands at $6.3 billion, a significant jump from the $924 million reported a year ago. This surge in financial performance can be attributed to the skyrocketing demand for AI research and implementation, which has surged following the successful launch of OpenAI's ChatGPT.

It is worth noting that the driving force behind this demand surge appears to be primarily Chinese technology companies. This trend has gained prominence due to China's recognition of its lag in the AI sector. Fearing potential future export restrictions imposed by the Biden administration, Chinese tech firms are currently amassing modified GPUs from Nvidia. This proactive measure is an attempt to secure a stable supply of crucial components for their AI endeavors.

As the earnings report approaches, the central question revolves around whether Nvidia can sustain its fiscal year outlook. This pivotal moment will unveil whether the initial rush of demand remains consistent or if there are signs of cooling. The market will be closely observing these results to gauge the trajectory of AI-related sectors and the extent of Nvidia's influence within this evolving landscape.

What’s happening in markets?

BRICS summit could be a headwind for the dollar

The leaders of BRICS – Brazil, Russia, India, China and South Africa – are scheduled to hold talks this week Tuesday to Thursday. Key agenda is expected to center around the group’s expansion, with some 40 other nations lining up to join including Indonesia, Saudi Arabia, Argentina and Egypt. This could mean internal conflict as South Africa seems open to the idea but Brazil is worried about its influence getting diluted. Meanwhile, Russia is attempting to ward off currency pressures at home and Xi is trying to find the most appropriate response to pressures on China’s property sector and economy at large. But a larger group could mean more opposition to the West and a larger pursuit against the dominance of the dollar. This could, however, be positive for Gold which acts as an alternate store of value and central banks continue to ramp up Gold purchases in order to hedge against the dollar. Russian invasion of Ukraine and food security issues could also be discussed.

China to focus on cleaning up the shadow banking, property, and local government debts

The persistent stress in the Chinese property sector and the shadow banking sector, as well as local government financial vehicles, continues to cast a shadow over market sentiments. The Chinese authorities are seemingly inclined towards a strategy of deleveraging and restructuring rather than bailing them out. This approach aims to proactively tackle potential issues and brace for impactful headlines that could potentially trigger market volatility. Nevertheless, it's important to recognize that concurrently addressing the solvency concerns within these sectors and enhancing the overall allocation of capital across the economy could yield positive outcomes in the long run.

US equities (US500.I and USNAS100.I): Energy sector shines with 0.9% gain, fueled by crude oil rally

In an uneventful session, the S&P concluded nearly unchanged at 4,370. Meanwhile, the Nasdaq 100 registered a slight decline of  0.1%, closing at 14,694. Energy stood out by gaining 0.9% and leading the sectoral performance within the S&P 500 due to a rally in crude oil prices. However, Deere (DE:xnys) had a significant setback, plummeting by 5.3%, despite surpassing quarterly expectations in its financial results. Investor apprehensions regarding the future demand for agricultural machinery lingered, primarily stemming from the recent sharp declines in grain prices.

For more information, please visit https://www.home.saxo/en-mena