Stocks recover, as market prices in hopes of a monster Nvidia earnings report

Stocks are higher on Tuesday, reversing some of the bearish sentiment that has taken hold in the past week. European markets are broadly higher, and US stock futures are also pointing to a stronger open later, partly reversing Monday’s losses.

Oil price declines, defying threats from Iran over US sanctions

The shift in mood has been helped by the decline in the oil price, Brent crude is now trading below $90 per barrel, and the market is ignoring Iran’s threats to retaliate against the latest round of US economic sanctions. There is also hope that Nvidia’s results, released on Wednesday night, will refresh the AI trade.

Nvidia’s share price rises ahead of key earnings report

On Monday, the sell off in US stocks was led by tech, in particular the tech hardware and semiconductor sectors, which were the worst performers. There were steep losses for the AI darlings like SanDisk, Micron and Super Micro. However, these names are rising in the pre-market, and Nvidia’s share price is also higher by nearly 1% in pre-market trading, as the market starts to price in the effects of a potential monster earnings report that restores faith in the AI trade.

The most actively traded stocks in the US right now are all the major AI names, including Nvidia, Tesla, Micron and SanDisk. This adds to evidence that Nvidia’s results will be a key driver of price action, and potential volatility later this week.

The bond market is still in focus after last week’s ructions. Global sovereign bond yields including Treasury yields are mostly flat  this morning. US yields fell on Monday in a sign that the US Treasury’s bond buyback plan is keeping a lid on yields for now.

Gold benefits from US fiscal mess

The decline in yields is boosting gold, which rose to its highest level since May earlier on Tuesday. It has pulled back slightly as we progress through Tuesday morning, but gold is still on track for its best monthly performance since 1999, and is higher by 15% in the past month.

The focus is unlikely to shift from gold as we lead up to this week’s Jackson Hole central bank symposium. If Kevin Warsh shifts to a more dovish stance, then this could turbo charge the gold rally back above $5,000 per ounce.

At this stage, it is unclear how Kevin Warsh will reconcile being dovish with not giving any forward guidance. The risk for gold bugs is that he maintains his current hawkish stance, which weighs on the gold price. From a technical perspective, the 200-day sma at $4,530, is key support in the short term.

Chart 1: The gold price reaches a 3-month high

Source: XTB

Dollar Alt trade rides high

The ‘Dollar Alt’ trade is also gaining traction, as Bitcoin surpasses the $80,000 mark after it gained 4% on Tuesday. USD is gaining slightly on Tuesday, but it remains weak, and the market senses blood, hence the rise in gold and Bitcoin. Even a hawkish Warsh at Jackson Hole may not be able to quell dollar losses, since this could exacerbate fears about the US bond market.

Overall, it’s a tough spot for the buck right now, and we think that any gains in dollar crosses could be short lived.

Dax benefits from stronger German macro picture

Elsewhere, the market is still digesting the better German GDP data for Q2, along with the stronger than expected IFO report. Germany’s Dax index is the top performer out of the European indices so far on Tuesday. Ahead, US stocks look set to make a recovery, but markets could remain directionless as we lead up to some key economic data and Nvidia’s results on Wednesday, and the Jackson Hole central bankers conference on Friday.