Looking back at last week, Federal Reserve Chairman Powell released the strongest signal of interest rate cuts so far in his speech at the Jackson Hole annual meeting on Friday, ending a week of trading on Wall Street with cheers. The S&P 500 index is once again approaching a historic high.
This week, the Federal Reserve's most favored inflation indicator, the Personal Consumption Expenditures (PCE) Price Index, is about to be released. Although the Fed's interest rate cut in September is almost certain, the core PCE inflation in July may provide the market with more signals of monetary policy changes.
Another major event this week is that Nvidia will announce its Q2 2025 fiscal year results after market hours on August 28th Eastern Time. Nvidia's increase so far this year is about 160%, contributing nearly a quarter to the market value growth of the S&P 500 index. Therefore, the performance of this chip leader will have a huge impact on the rise of the US stock market.
Week ahead: Nvidia welcomes financial report 'big test'
This week's US stock earnings season is coming to an end, and Nvidia's performance will become a key catalyst in the market. Nvidia will announce its results for the second quarter of fiscal year 2025 after market hours on August 28th Eastern Time.
NVIDIA's performance report is not only related to itself, but also closely related to the global technology and even financial industry chain. Analysts generally expect the company's second quarter revenue to be $28.67 billion, a year-on-year increase of 112.2%. Although the growth rate has slowed down compared to the same period last year, the growth is still strong, with an expected earnings per share of $0.64.
Allspring Global Investments believes that Nvidia has become a stock representing the trend of the times, and its financial report release time is the "Super Bowl" of the financial market, which will attract widespread attention and discussion.
According to data from option analysis company ORATS, traders expect Nvidia's stock price to fluctuate by around 10.3% on the second day of its financial report, which is higher than the expected trend before any Nvidia financial report was released in the past three years and far higher than the average volatility of 8.1% after the announcement of performance during the same period.
In addition, from August 25th to August 27th local time, the annual top chip event Hot Chips will be held at the Stanford University Memorial Hall in the United States. Nvidia will share the latest progress of the supercomputer Blackwell on the 26th.
In addition to Nvidia's financial report, a group of Chinese concept stocks such as Pinduoduo, Meituan, and Ctrip will also release their latest results.
Key inflation indicators hit
Looking back at last week, Federal Reserve Chairman Powell released the strongest signal of interest rate cuts so far in his speech at the Jackson Hole annual meeting on Friday, ending a week of trading on Wall Street with cheers.
After Powell's speech, traders increased their bets on a significant interest rate cut in September. Currently, the market has priced the probability of a 50 basis point rate cut in September at 37%, higher than the previous estimate of about 25%. The market also expects that by the end of this year, the Federal Reserve's cumulative interest rate cuts in the remaining three meetings will reach 106 basis points.
In terms of data, the most noteworthy will be the Personal Consumption Expenditures (PCE) price index in the United States, which is the Federal Reserve's most favored inflation indicator. Although the September interest rate cut is already a certainty, the July PCE inflation data may affect the magnitude of the Fed's interest rate cut and the subsequent policy path.
The market generally expects the core PCE index to remain unchanged at 0.2% month on month, with a slight rebound in year-on-year growth rate to 2.7%. The overall PCE monthly and annual rates are expected to accelerate slightly. At the same time, the monthly rate of personal expenditure in July is expected to increase by 0.5% month on month, which may further alleviate concerns about an economic recession but also weaken hopes of a significant interest rate cut.
Prior to the release of PCE data, the United States will also release data on durable goods orders for July, initial jobless claims for the week ending August 24th, and the second revised value of GDP growth for the second quarter. In addition, the 2024 FOMC voting committee and Atlanta Fed Chairman Bostic will give speeches on Thursday and Friday respectively.
The Bank of Japan may still have room for interest rate hikes this year
In terms of the Japanese market, the Tokyo CPI data will be released this Friday, which is considered a leading indicator of the national inflation trend in Japan. In addition, the unemployment rate in Japan in July also deserves close attention from investors.
When the Bank of Japan simultaneously raised interest rates and announced a gradual halving of asset purchases at its July meeting, the reality that Japan's years of ultra loose monetary policy were coming to an end finally touched the nerves of investors.
At present, it seems highly likely that the Bank of Japan will raise interest rates again before the end of the year. Although Bank of Japan Governor Kazuo Ueda expressed concerns about the current market instability, he still hinted that there will be more interest rate hike plans if the economy and inflation remain on track.
Nomura Japan Chief Economist Keihei Morita stated that the Bank of Japan's policy response mechanism (referring to the monetary policy rate that the Bank of Japan considers the most appropriate under existing economic and price conditions) may have changed at the July meeting.
Morita Kyohei stated that there is still room for adjustment in the forecast of monetary policy without changing the forecast for the economy and inflation. Therefore, we hold a new perspective on monetary policy forecasts. At the same time, we have adjusted our evaluation of the policy stance of members of the Bank of Japan's Policy Committee (hawkish or dovish), reassessing the stance of Bank of Japan Governor Kazuo Ueda as' slightly hawkish 'rather than' moderate '
Morita Kyohei believes that the Bank of Japan will raise interest rates at its policy meetings in October or December this year (with a higher possibility of a rate hike in December), and will raise interest rates again at its policy meetings in April and July 2025. The expected three interest rate hikes (once this year and twice next year) signify an adjustment in the 'loose' policy phase. Among these three interest rate hikes, we expect the first one to take place at the policy meeting in October or December this year, and the likelihood of a rate hike in December is higher.
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