Nvidia, PCE inflation to drive Nasdaq Street sentiment: The Week Ahead

Nvidia’s earnings report on Thursday has the potential to drive sentiment for the Nasdaq 100, particularly if it misses estimates for the first quarter in seven. Traders will then focus on the PCE inflation report on Friday to assess Fed policy – assuming Jerome Powell hasn’t made it crystal clear what to expect at his Jackson Hole speech later today. Which seems unlikely.

Beyond that we have a stack of second-tier data which is unlikely to be a major driver for markets, and that means we should expect lower levels of volatility overall. Unless inflation data or Nvidia earnings report throws a spanner in the works.

Australia’s monthly CPI report warrants a look for RBA watchers, although I maintain my view that there may not be a lot to watch and the central bank remains unlikely to change rates this year. But any pickup in the PCI data pours yet more cold water on bets of any cuts.

The Week Ahead: Calendar

Nvidia, Nasdaq 100 technical analysis:

You’d be forgiven for thinking I overlaid the same chart over Nvidia, but that is in fact the NASDAQ 100. The correlation is not quite perfect but it is close enough to see just how much sway one stock has on the broader index (and visa versa).

Nvidia’s share price fell -3.6% on Thursday due to the broader selloff on Wall Street, following less-dovish-than-expected comments from Fed members. And prices for both Nvidia and the Nasdaq (and Wall Street in general) could pull back further, should Jerome Powell disappoint and not deliver clearly dovish speech later today.

Yet it could be Nvidia that takes the driving seat next week once earnings are released on Thursday. Earnings have beaten expectations over the past six quarters, of which we saw a notable rise of their share price over last two. But with the recent rally failing to take out the record high, are investors less keen on tech than they were this time last year. Possibly.

Of course, should Nvidia’s earnings exceed expectations for a seventh quarter and US inflation data (released Friday) come in soft, it could just as easily spark the next move higher for the tech giant’s share price. Assuming inflation data does not come in too soft, as to rekindle fears of a recession.

A bearish engulfing candle formed on Thursday on high volume, which warns of a potential swing high. Trading volumes were also declining throughout the rally from the August low, which is slightly underwhelming for the bull case. Perhaps a deeper pullback is due.

120 is likely a key level bulls want to defend, a break beneath which assumes a correction is underway. And that brings the 110 and 105 handles into focus for nears, the latter being near a high-volume node at 104.93.  

Trader’s watchlist: Nvidia (NVDA), Nasdaq 100, S&P 500, tech stocks, VIX

US PCE inflation (Friday)

The Fed’s preferred inflation measures are released on Friday, with consumer confidence (which includes inflation expectations) shortly after. Core PCE remains above the Fed’s 2% target at 0.2% y/y, and the deceleration of prices has slowed. The last thing the Fed want to see is these measures of inflation tick higher.

If super core or core PCE rise just 0.1%, it likely retains the view of a Fed soft landing. Where things get tricky are if we see these figures dip below zero, particularly if accompanied by deflationary figures from personal income and personal consumption. While this scenario seems low probability, it would surely stir fears of a hard landing and weigh on risk, the US dollar and yields as calls for a recession resurface.

Conversely, an unwelcome rise of inflation brings back the higher for longer narrative and likely supports the US dollar to the detriment of risk appetite.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge