Nvidia Earnings in Focus as Asian Markets Cautiously Await Key Economic Data

Key Points Summary:

• Asian stock markets exhibited caution as traders awaited U.S. corporate earnings and economic data, particularly regarding interest rates and AI stock trends.

• U.S. job data expected this week could reinforce pressure on the Federal Reserve's rate decisions, with mixed signals surfacing from policymakers.

• Major earnings reports, especially from Nvidia, will be closely watched, reflecting the overall sentiment in the tech sector.

Asia’s stock markets adopted a cautious stance on Monday as investors positioned themselves ahead of a week filled with significant corporate earnings and delayed U.S. economic data. The focus remains on interest rate expectations and the sustainability of a recent rally in artificial intelligence stocks, which is under scrutiny.

Market sentiment has shifted, reducing the likelihood of a U.S. rate cut in December from over 60% a week ago to just 40% as of Monday, thereby intensifying downward pressure on equities. In the early hours of trading, S&P 500 futures edged up by 0.3%. Meanwhile, Japan’s Nikkei index remained flat, but shares in tourism and retail sectors plunged following China’s advice warning citizens against travel to Japan amid escalating diplomatic tensions. Notable declines included approximately 10% drops for Isetan Mitsukoshi and Shiseido.

In Australia, the bourse hit a four-month low, primarily weighed down by a 0.7% decline in BHP shares in response to a British court ruling linking the company to a dam collapse in Brazil.

On Wall Street, indices managed to recover somewhat from a notable selloff on Friday, with the S&P 500 closing slightly lower and the Nasdaq seeing modest gains. Meanwhile, U.S. Treasury yields rose, with the 10-year yield holding steady at 4.156% during trading in Tokyo.

The highlight of U.S. economic data this week is the delayed September jobs report, scheduled for release on Thursday. However, given that private surveys indicate a slowdown in the labor market, this report might lack immediate relevance. Moreover, with 19 Federal Reserve officials scheduled to speak this week, their interpretations of the data will be closely analyzed. Recent speeches by Kansas City Fed President Jeffrey Schmid and Dallas Fed President Lorie Logan conveyed a hawkish tone, raising doubts regarding potential rate cuts in the near term.

Bob Savage, head of markets macro strategy at BNY, noted, "Expectations of weaker jobs data coupled with higher inflation suggest balanced risks, neither of which bode well for market confidence, especially with stagflation re-entering the conversation."

Recent data from Japan indicated a contraction in its economy for the first time in six quarters, largely attributed to the impact of U.S. tariffs. Reports indicate that Japan's new Prime Minister, Sanae Takaichi, is contemplating an expansive fiscal stimulus package amounting to approximately 17 trillion yen ($110 billion), further emphasizing her government's focus on expansionary policies. This development has added pressure on the yen, which traded at around 154.54 per dollar, fostering speculation about potential market interventions, while bond yields surged to their highest levels since 2008.

Analysts caution that disruptions in fiscal discipline could lead to market volatility, reminiscent of last week’s turmoil in Britain when stocks, bonds, and the pound plummeted following indications that Finance Minister Rachel Reeves was reconsidering tax increases.

In U.S. earnings news, major retailers including Home Depot, Target, Walmart, and Nvidia are set to release their quarterly results this week, with particular attention on Nvidia. As the semiconductor giant's growth trajectory is pivotal to market sentiment, analysts suggest that any disappointment in earnings or guidance could adversely affect the recent rally in associated stocks. Since the launch of ChatGPT in November 2022, Nvidia shares have surged nearly 1,000%, including a year-to-date increase exceeding 40%, positioning the company as the first to eclipse a $5 trillion market value.

On the foreign exchange front, the U.S. dollar strengthened slightly, holding the euro at $1.1607 and making gains against other major currencies. Gold prices steadied after losses incurred last Friday, trading at $4,084 per ounce, while Brent crude futures fell by 1% to $63.78 in morning trading in Asia. Bitcoin, often viewed as a gauge for liquidity and sentiment in tech stocks, experienced its largest weekly decline since March, shedding over 10% last week to trade at around $94,717.