Update Equities: Quiet before the storm?
Equity markets had a relatively calm week. In the beginning of the week, some markets were again able to hold tight around their record levels, but, over the week, retreated somewhat from these highs. Investors might be waiting for more direction and clarity. And for answers to such questions as: Will the US labour market weaken further and will that entice the Federal Reserve to continue with rate cuts? Will the next earnings season give more insight into how tariffs are affecting company results?
The macroeconomic picture looks fine. US economic growth (as measured by GDP) was better than expected, and inflation remains well contained. The preliminary numbers regarding durable and capital goods were strong as well. Based on these results, more rate cuts do not seem to be necessary yet. But as the Fed has a dual mandate – price stability and maximum employment – the labour market data that will be published next week might provide reasons for the Fed to cut further. Fed Chair Jerome Powell warned about this challenging situation with the near-term risk to inflation still tilted to the upside while risks to employment are leaning to the downside.
The earnings season will officially kick-off in the second week of October. Companies will present their third-quarter earnings and will probably give some guidance for the rest of the year. Investors will be very interested in the outlook for next year and in the way companies are dealing with tariffs.
This week the investment flow into technology and artificial intelligence (AI) continued. Nvidia announced that it will invest up to USD 100 billion in OpenAI. The deal gives Nvidia a financial stake in the world's most prominent AI company, and it gives OpenAI the cash and access it needs to continue to buy the advanced chips required to maintain its dominance in the AI landscape. Alibaba also announced a deal with Nvidia, as the Chinese company seeks to expand its global datacentre plans and develop new AI products. Alibaba is positioning AI more and more as a core business alongside its traditional e-commerce activities.