Stock Market
European and US stock futures are trading mixed as investors pay close attention to recent escalation in the war between Iran and Hezbollah. The main concern is whether we will witness further escalation in these tensions, or if they will cease here and return to reality. The reality is that things are not reverting to the previous norm, and geopolitical tensions are likely to persist; however, a broader conflict in the Middle East remains a scenario with the least favorable odds.
The other factor that investors and traders are looking at is where they left off last week, and that is the future path of the interest rates in the US. There were positive comments from the Fed chairman, as he clearly indicated that the September Fed meeting is where investors should expect an interest rate cut, but by how much is the question that he left out? However, it is important to note that the answer to this heavily relies on the US job data, which is expected in September. Any significant downside risk to the US labour market is likely to force them to cut rates more aggressively, a factor that the smart money is most heavily betting on.
In terms of stock indices, all eyes continues to remain on the Nasdaq index as it’s performance has been lacklustre as compared to the S&P 500 and the Dow Jones Industrial average. The below chart shows important price levels and it also shows that the price may fall below the 50-day SMA shown in red.
Apple And Nivida
In terms of stocks, there are only two companies, in our opinion, that are going to garner the most attention, and those are Apple and Nvidia. Apple has announced its big day for the launch of its iPhone on Sept. 9. Given Apple’s significant achievements in the AI space, the key factor at this time will not only be the new features it introduces, but also, more importantly, the price points. In terms of design, Apple has been unable to produce anything revolutionary for a long time, and the same is true for its functionality, a fact that rivals like Samsung have pleasantly surprised their consumers with. However, today, the focus is primarily on price and affordability; the days when Apple could set its own prices are long gone; now, it must cater to the actual purchasing power of consumers and take into account factors such as inflation and the damage it has caused.
Regarding Nvidia, the focus is primarily on its earnings, future projections, and the potential for further growth. There is no doubt that the whole stock market would move on the back of these earnings given the size of the company. However, traders are more interested in understanding the implications for the AI industry and the strength of the demand for its AI chips. The entire AI industry continues to surprise consumers and investors due to its massive positive impact on productivity and ease of getting things done. As long as these factors continue to improve, we believe that the demand equation will continue to rise. Despite the already high bar, the company has the ability to set new standards.
Oil Prices
Oil traders are very much keeping their ears to the ground, as geopolitical tensions are very much anchored in place after the weekend’s event. The strikes between Hezbollah and Israel were anticipated following the Israeli attack on Iran, and the current focus is solely on a broader conflict that could potentially involve other countries in a larger conflict. Looking at the current narrative between Israil and Hezbollah, it seems unlikely that things will escalate beyond the current situation, as no one appears to be interested in intensifying the conflict. Therefore, we can confidently assert that the current surge in oil prices, encompassing both crude and Brent oil, is purely temporary. And the fact that the recent tensions only pushed the oil prices towards their near-two-week high is not a significant move, especially when compared to the original expectation when Israil attacked Iran and a much wider action was anticipated from Iran. Therefore, we can conclude that a greater degree of calm has prevailed, and the significant increase in oil prices that was widely anticipated may not materialize. Once the dust has settled, the focus will return to the main factors, namely your oil supply and demand.
Gold
The previous metal’s prices are very much moving upward and onwards as investors continue to celebrate the news that the time has come for the interest rate cycle to change its direction. The word “change” is driving the price action, and the recent escalation in geopolitical tensions is also contributing to a sense of flight to safety. However, we maintain our belief that gold prices at current levels are significantly overbought, as the recent surge in prices has been excessively rapid. If one closely examines the details of the recent comments from the Fed Chairman, it becomes clear that there was nothing new in those remarks; it was a foregone conclusion that the Fed would start the process of reducing rates. If the Fed had indicated that they were going to take more aggressive measures to cut rates, the massive influence would have been more understandable, and there was nothing similar to that. This is why we continue to believe that the phenomenon of buying on rumors and selling on news will persist in relation to gold prices and the Fed’s interest rate cut.