Morning Bid: Rate-cut relief doused by geopolitics

A look at the day ahead in European and global markets from Ankur Banerjee

Optimism over looming U.S. interest rate cuts have been tempered by nervousness over what economic data will show in the coming weeks, sky-high expectations from earnings of AI darling Nvidia (NASDAQ:NVDA ) and evolving tensions in the Middle East.

That has left markets on edge and taking a breather, with the yen hovering near three-week highs, the dollar steady but close to 13-month lows and Asian stocks down 0.42% on Tuesday after touching its highest in a month on Monday.

Oil prices eased after surging in the previous session due to supply concerns, while gold was hovering close to a record peak touched last week on safe haven flows.

Futures indicate European stock markets are set for a subdued open as well, with London stocks returning from a holiday on Monday.

Investors await key economic data this week, including EU inflation on Friday, for signals on the policy path for the European Central Bank, which meets on Sept. 12, where traders have broadly priced in a 25 basis point rate cut.

Nvidia's earnings on Wednesday will set the tone for a potential AI rally and improved risk appetite now that markets are braced for rate cuts.

Anything other than an eye-watering growth forecast will likely unnerve investor confidence, but until then, markets will be jittery and choppy. Focus will be on Europe's technology stocks, after the tech index slid 1% on Monday.

Another thing to watch for will be how European markets react to lacklustre earnings from Temu-owner PDD Holdings that underscored weak demand from Chinese consumers, wiping out $55 billion in market capitalisation.

European luxury companies have also been hit by reduced spending from Chinese consumers.

The U.S. personal consumption expenditure price index - the Fed's preferred gauge of inflation - is due on Friday and will be closely scrutinised especially after Fed Chair Jerome Powell all but confirmed a rate cut in September.

Markets are only concerned about the size of the cut - will it be a 25 bp cut or a bigger 50 bp cut next month. Traders are pricing in 100 bps of easing for the rest of the year's three Fed meetings. Data will decide where the Fed heads.



Key developments that could influence markets on Tuesday:

Economic events: Germany detailed GDP data for Q2

Source: Investing.com