Market report: Debt nerves and inflation jitters while Nvidia lands mega results
Susannah Streeter, chief investment strategist, Wealth Club: ‘’The Footsie may have flirted with fresh closing highs yesterday, but sentiment looks set to become more cautious as investors refocus on worries about inflation proving sticky, huge government debt piles and the prospect of interest rates lingering at elevated levels. The key central bankers’ meeting at Jackson Hole is getting underway, and Fed chair Kevin Warsh’s speech tomorrow will be closely watched for hints about the future path of interest rates. While headline inflation has dipped back, it’s not such a benign picture if you look at the Fed’s preferred measure, the Personal Consumption Expenditures Price Index. It captures a broader range of prices and spending behaviour, and it’s still running hot – headline PCE is at 3.7%, while core PCE came in at 3.3%, above forecasts. That leaves the Fed with a tricky balancing act, with inflation still well above its 2% target just as signs of a cooling economy and a weakening jobs market come to the fore.
There is some relief on the energy front, however, with Brent crude falling back again to $87 a barrel. Hopes are growing that a framework being worked on by Iran and Oman could pave the way for safer shipping through the Strait of Hormuz, easing fears of prolonged disruption to global oil supplies. That is taking some of the geopolitical risk premium out of the price of crude, although the waterway is not yet fully reopened and the wider conflict remains far from resolved, so the risk of renewed volatility remains.
Bond markets have also been febrile, demanding higher yields amid concerns about unruly deficits and precarious levels of national debt. So investors are becoming more cautious about the global outlook, which could weigh on sentiment towards the internationally focused FTSE 100. Given its tech-lite nature, it’s also missing out on the renewed surge of enthusiasm for AI stocks after chip star Nvidia’s latest bumper set of results. Nasdaq and S&P 500 futures, however, indicate a stronger start for Wall Street, despite wariness about monetary policy, as investors pile back into technology.
The AI juggernaut is rumbling on with Nvidia smashing through expectations, amid voracious demand for the tech backbone of the AI revolution. The results solidified high expectations for the company’s mega revenues going forward, and shares firmed up, leaving behind the post-results wobbles seen after previous updates. Given the might of Nvidia, which carries the largest weight of any company in the S&P 500, the results are closely watched as a gauge of sentiment towards AI adoption, and the prospects for the index, which so many portfolios track.
Quarter by quarter Nvidia’s revenues are accelerating, landing at $96bn for the second quarter, more than double a year ago, and the trend looks set to continue with revenue of $108bn in the next quarter and strong demand stretching into 2028. Demand for its Blackwell chips has been particularly significant, showing that customers are continuing to spend heavily on Nvidia’s newest generation of AI accelerators rather than simply filling existing capacity. With demand still running ahead of supply, Blackwell is helping to power the next leg of the AI infrastructure build-out.
However, once the initial excitement settles, questions are likely to resurface about the durability of this boom in revenues. It’s becoming less about whether Nvidia can keep climbing the AI mountain, and more about how long it can sustain this extraordinary pace of ascent and whether the vast sums being poured into AI infrastructure will ultimately deliver the returns needed to justify the colossal investment.’’