First - Happy Independence Day for India (Aug 15) and Pakistan (Aug 14).
Last week was historical week for Indian Film industry which collected over $100 M on box-office and brought in millions of people to movie theaters with releases like Gadar2, OMG2 and Jailer. I happen to see all three of them. They are decent crowd-pleasers - the main stars in all of them are over 55. In particular I liked OMG2 in the way a difficult topic such as need for sex-education in Indian schools was presented. Pankaj Tripathi's performance is outstanding.
Now onto three "i" factors
Inflation:
Latest CPI and PPI readings were good in terms of inflation trends. Headline numbers are below 4 and heading downwards albeit slowly. Compared to headline numbers above 8% last summer, this is great progress. Many factors helping good inflation trends...oil prices are down (even though recently they have been creeping up), labor costs are stabilizing (despite historically low unemployment), cost of goods including perishables (like eggs) are down. The only stubborn factor is cost of shelter (NYC apt rents are historically high). Given all these factors inflation is heading in right direction but would get stuck around 3% for long time giving enough ammunition to fed to be hawkish (and repair its credibility which it lost last year with statements like "inflation is transitory")
Interest (Rates):
10-year treasury rates are near 15 year high and inching towards 4.3. That means bond markets are giving clear indications that rates are going to be higher for longer. Fed meeting minutes also were hawkish. Next week Fed chairman Powell is going to speak at yearly conference at Jackson Hole. Last year he used this forum to start the campaign of very aggresive rate hikes. Would he use this forum to give indication that Fed is near end in the campaign (kind of "Mission Accomplished") or keep the hawkish tone that Fed has more work to do...IMO Powell will say that we have more work to do but future rate hikes would be data dependent...that means it would be back to monthly CPI/PPI numbers and "all clear" signals markets are expecting would not be given. So expect volatility based on every statement Fed officials make and monthly CPI/PPI/Employment reports.
(Artificial) Intelligence:
Next week's Nvidia's earnings call may be one of the most important and eagerly awaited call for any company, tech industry and may be all of the markets. Nvidia blew past expectations in last earnings call by raising revenue estimates by more than 50% ($11B vs expectations of $7B) which triggered the late spring/early summer rally and made Nvidia newest trillion $ market cap company. The expectations are even higher and markets could be expecting Nvidia to blow past even $11B...(whisper numbers may be closer to $12.5B) and raise forecasts for the rest of the year significantly. They are expecting company to produce $15B quarter in 2024/2025. That would be almost 4 times as what company was doing just 3-4 years back. If Nvidia is able to deliver these astronomical expectations, it would lift all tech companies with confidence that AI is still in the early cycles (like Internet in 95-96) and not just another fad/bubble (like crypto).
So get ready for some interesting moves in the markets from now till Labor Day before two of the worst months for markets (Sept and Oct) start...Watch out for potential "black swan" event. "China's Lehman Moment" given precarious situation of its real estate sector and self-induced pains on its tech industry. But that topic for another day.
In the meantime, Enjoy rest of summer days and Labor Day!
/Shyam
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