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The market's optimism was short-lived

Miguel A. Rodriguez
Miguel A. Rodriguez
25 August 2023

Looks like Nvidia's earnings were not enough to keep markets upbeat. Bond yields bounced back from Wednesday's low, and financing conditions are expected to become more stringent. Today's focus is on Powell's speech at the Jackson Hole meeting.

Nvidia's momentum was not enough  

The stock market resumed its bearish trend after the bullish rallies brought on by the technology company Nvidia's extraordinary earnings and higher expectations, as well as by the reversal of the yields on treasury bonds following the release of weaker PMI numbers in the United States.  

Nvidia's excellent performance, which increased above 8% before the opening and then drastically plummeted, erasing all the gains, has not been enough to keep the bullish momentum.  

The market has again turned its attention to interest rate changes and potential economic effects.

 

Back to interest rates 

According to the market consensus and most Fed officials, the present federal funds rate of 5.50% will be maintained for a considerable amount of time, resulting in higher market interest rates (yield on treasury bonds) than the current ones.  

Yesterday, bond rates recovered from the lows following a primarily technical decline. As a result, future financing conditions would be more difficult, which is terrible news for the stock markets and even worse for technological businesses, which rely on funding the most.  

Because of this, the Nasdaq index had a significant decline yesterday, almost undoing all its gains the day before due to Nvidia Inc.'s strong performance.

 

How did the US Dollar react?  

Due to the increase in market interest rates, the US dollar had a day of growth once more. The EUR/USD pair has again come extremely close to touching 1.0800, although it is still below the 1.0840 level of support.

When Jerome Powell speaks from Jackson Hole today, the market will experience a significant event. He is expected to maintain his hawkish stance to support the market's expectation of higher bond yields in the future.

EURUSD Daily Chart.png

EUR/USD Daily Chart, 25.08.2023.

Sources: Bloomberg, Reuters.

Key Takeaways

  • Nvidia's earnings were not enough to keep the market's bullish mood.  
  • As a result, markets shifted back to interest rates.  
  • It could become harder for companies to obtain financing in the near future.  
  • The US Dollar kept its strengthening trend against the Euro.  
  • Today, the focus shifts to Powell's speech at the Jackson Hole meeting. 

 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.