The Week Ahead: Tokyo, US PCE inflation; Nvidia earnings

The headline act will be Nvidia. The chipmaker, which reports second-quarter results on Wednesday, is arguably the most important stock in the world these days. Where Nvidia goes next, the rest of the global market is likely to follow. Meanwhile, as underlying inflation in the US creeps higher, Friday’s personal consumption expenditures (PCE) report could also move markets. A rise in the Federal Reserve’s preferred measure of inflation may cast doubt on the prospect of a September rate cut. Staying on inflation, we also preview Thursday’s release of the consumer price index (CPI) for the Tokyo area. Widely considered a leading indicator of Japan’s overall CPI as it’s published weeks before the national print, the Tokyo CPI reading could bolster the yen against the US dollar. 

Nvidia Q2 earnings

Wednesday 27 August

Analysts estimate that Nvidia’s fiscal second-quarter revenue rose 52.7% to $45.9bn, boosting earnings by 47.7% to $1.00 a share. Gross margins are projected to decline to 72.1% from 75.7% a year ago. For Q3, analysts expect the company to guide revenue of $52.7bn, with earnings rising sequentially to $1.19 a share and gross margins at 73.3%. Shares of the Nasdaq-listed maker of artificial intelligence chips, up by more than a quarter this year at $175, could be poised to rise or fall by about 6.4% following the Q2 results, based on options market positioning. 

Although the options market is not providing a clear indication of which direction the Nvidia share price might move after the results, gamma levels point to a significant resistance zone between $180 and $190, which will be very difficult for the stock to penetrate.

From a technical perspective, upside potential appears limited. The stock recently fell below an uptrend that had been in place since April, as the below chart highlights. In addition, a bearish engulfing candle has formed, which has historically been a negative signal for the stock. The relative strength index (RSI; the purple line on the lower panel of the chart) has also turned lower, suggesting that momentum has shifted from bullish to bearish. If the stock continues to decline as the technical patterns suggest, then $164 could be the first level of support to monitor, followed by stronger support near $150.

^{Sources: TradingView, Michael Kramer}

Tokyo August CPI

Thursday 28 August 

Pressure is mounting on the Bank of Japan to raise interest rates. The central bank held its short-term policy rate at 0.5% in July, even though inflation is running at more than 3%. The upcoming Tokyo-area CPI report could add to calls for a rate rise when policymakers next meet on 18-19 September. 

While the headline rate of inflation has eased somewhat, it remains elevated. Consumer prices increased 3 1% in the year to July, down from 3.3% in June, though the so-called "core-core" inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the Bank of Japan, held steady at 3.4%. This means that real interest rates in Japan are still deeply negative. A Tokyo CPI reading that suggests the BoJ could hike rates may strengthen the yen, potentially sending USD/JPY lower.

The currency pair appears to have formed a bearish flag over the past few weeks, suggesting that USD/JPY might fall in the near term. However, it will take higher-than-expected inflation data to significantly boost the yen and push the pair below ¥145 per dollar. Conversely, if USD/JPY rises above ¥149 in the near term, signalling a weaker yen, the pair could soon move towards ¥152. So, while macroeconomic conditions in Japan appear to favour a stronger yen moving forward, it may take time for this to be reflected in the USD/JPY rate. 

^{Sources: TradingView, Michael Kramer}

US July PCE price index

Friday 29 August 

Both the headline and core PCE readings are forecast to have risen 0.3% month-on-month in July, the same pace of growth as in June. Nowadays the market does a fairly good job of pricing in the expected PCE figures once it has the CPI and PPI reports earlier in the month. A surprise would therefore be quite unexpected. If one does occur, it is more likely to be on the upside. A surprise either way could have an impact on US equity markets such as the Nasdaq. 

The Nasdaq 100 traded below its 20-day simple moving average (the blue line on the chart below) for two consecutive days in August – the first time this has happened since April. In addition, a bearish divergence has formed, with the RSI making a lower high this month while the Nasdaq 100 itself recorded a higher high. If the tech-heavy share index is indeed about to dip, support sits at around 22,780. A break below that level could see the index slump towards 21,850, filling an open gap.

^{Sources: TradingView, Michael Kramer}

Economic and company events calendar

Major upcoming economic announcements and scheduled US and UK company reports include:

Monday 25 August

• Germany: August IFO business sentiment index 
• Results: Heico (Q3), PDD (Q2)

Tuesday 26 August

• Australia: Reserve Bank of Australia meeting minutes
• US: June housing price index, July durable goods orders, August consumer confidence index
• Results: Ashtead Technology (HY), MongoDB (Q2)

Wednesday 27 August

• Australia: July consumer price index (CPI)
• Germany: September GfK consumer confidence survey
• Results: Agilent Technologies (Q3), CrowdStrike (Q2), Hochschild Mining (HY), HP (Q3), Kohl's (Q2), NetApp (Q1), Nutanix (Q4), Nvidia (Q2) Pure Storage (Q2), Snowflake (Q2), Urban Outfitters (Q2), Veeva Systems (Q2)

Thursday 28 August 

• Eurozone: August business climate indicator, August consumer confidence index
• Japan: July unemployment rate, July retail trade, August Tokyo CPI
• Switzerland: Q2 gross domestic product (GDP)
• US: Q2 GDP, weekly initial jobless claims
• Results: Affirm (Q4), Autodesk (Q2), Bath & Body Works (Q2), Best Buy (Q2), Chesnara (HY), Dell Technologies (Q2), Dick's Sporting Goods (Q2), Dollar General (Q2), Gap (Q2), Hunting (HY), Marvell Technology (Q2), PPHE Hotel (HY), Ulta Beauty (Q2)

Friday 29 August 

• Canada: Q2 GDP
• Germany: July retail sales, August flash CPI
• US: July personal consumption expenditures (PCE) price index
• Results: Alibaba (Q2)

Note: While we check all dates carefully to ensure that they are correct at the time of writing, the above announcements are subject to change.

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