Market Brief: Markets brace for Fed minutes and Nvidia earnings (and not necessarily in that order)

Markets are trimming risk this morning as participants brace for what could become a make-or-break moment in technology speculation and global capital flows. With artificial intelligence juggernaut Nvidia set to publish third-quarter earnings after the closing bell, equity futures are setting up for a positive open after four days of losses, ten-year Treasury yields are again clinging to the 4.12-percent mark, and the dollar is trading higher amid a lack of domestic catalysts in Canada and Europe. The world’s most valuable company has seen its market capitalisation tumble by roughly 7 percent from the peak a few weeks ago, and broader indices are clearly poised to come under further selling pressure—or stage a rebound—if today’s numbers surprise.

We think the near-term trajectory for global currencies could hinge on the durability of the US technology boom. Combining yesterday’s Treasury data with our own estimate for third-quarter output suggests that net foreign inflows into American equities reached roughly 1 percent of gross domestic product in the four quarters to September—surpassing levels seen during the dot-com era and on the eve of the global financial crisis, and implying a solid underlying bid for the greenback even as foreign investors have raised hedge ratios in response to policy uncertainty. A turn in the capex cycle among the major hyperscalers could slow—or even reverse—these flows, leaving the dollar’s early-autumn gains vulnerable to erosion.

A number of potential non-Nvidia volatility triggers are ahead. Minutes taken during last month’s Federal Reserve meeting—when “strongly differing” views on the future monetary policy trajectory compelled Jerome Powell to warn markets against expecting more easing in December—will land this afternoon, generating a recalibration in rate bets. Tomorrow will bring September’s long-delayed non-farm payrolls report, the latest weekly jobless claims numbers, and Walmart’s third-quarter earnings, giving investors a view into how labour market conditions and consumer spending patterns are changing.

The British pound is trading only modestly lower after inflation decelerated as expected in October, bolstering the case for additional easing at the Bank of England’s December meeting. Data from the Office for National Statistics showed headline prices rising 3.6 percent in the year to October, down from 3.8 percent in September and matching the central bank’s latest projections. Services inflation—watched closely as a proxy for underlying pressures in the UK’s intangibles-heavy economy—slipped to 4.5 percent from 4.7 percent. Swap markets now assign roughly an 85-percent probability to a rate cut next month, with the prospect of tax increases in next week’s Autumn budget from Chancellor Rachel Reeves seen adding to the impetus for looser policy.

Japan’s yen is flirting with levels that could trigger official intervention as investors express growing nervousness ahead of an expected surge in government borrowing. Ten-year Japanese government bond yields briefly touched their highest point since the 2008 financial crisis this morning after reports suggested Prime Minister Sanae Takaichi is considering a far larger-than-expected fiscal package—exceeding ¥25 trillion, or roughly $160 billion—stoking fears of heavier bond issuance and rising fiscal risk. We remain doubtful she will ultimately unveil something so outsized, given voter frustration over mounting inflation, but—as this year’s experience in other advanced democracies, notably the United States, demonstrates—it cannot be dismissed. Selling pressure could intensify, contributing to the sort of “disorderly” move that often precedes a move from the Ministry of Finance.

With intervention risks rising in Japan and Switzerland, we would recommend maintaining standing market orders across the 24-hour trading cycle. If something unexpected occurs during periods of low liquidity—particularly during the “witching hours” between the North American equity market close and the Asian open—hedgers should be prepared to seize any opportunities created.

Market Overview

Notes: DXY: Dollar index, ON: Overnight movement, DMA: Daily Moving Average, Pivot points are calculated on a one-month basis, 3-month and 10-year spreads are against USD, Implied V.: implied at-the-money option volatility

Economic Calendar

*Please note: several US data releases have been removed, pending confirmation of release schedules from official statistical agencies.