By Ankur Banerjee and Johann M Cherian
Aug 26 (Reuters) – Global stocks edged up on Wednesday as falling oil prices pushed bond yields lower on hopes that the vital Strait of Hormuz could soon reopen, while investors awaited another pivotal earnings report from AI heavyweight Nvidia.
Iran said it had restarted talks with Oman to manage the Strait, as it faces heightened economic pressure from U.S. President Donald Trump in the nearly six-month conflict that has roiled oil markets and stoked global inflationary worries.
Brent crude futures fell for a third straight day on Wednesday, sliding more than 2% to $86.45 per barrel on the prospect of more supply coming through the Strait, which handled a fifth of the world’s traded oil before the war.
That helped push short-term bond yields, sensitive to central bank interest rate expectations, lower.
The yield on 2-year German bonds dropped over 2 basis points to a more than one-week low of 2.771%, while that on its U.S. counterpart was steady at 4.199% after falling about 4 basis points on Tuesday. [O/R] [US]
Oil prices have “moved away from that 90+ move, so there is some optimism that they could cool further. But we really need to see the traffic move through the Strait of Hormuz to get more comfortable with the idea that inflationary pressures are cooling considerably,” Fiona Cincotta, a senior markets analyst at City Index, said.
MSCI’s world stocks index was up 0.1%, with Europe’s benchmark STOXX 600 pinned near a more than one-week high.
WAITING FOR NVIDIA
Investors awaited Nvidia’s second-quarter earnings later in the day, with the focus on whether the massive AI spending boom is sustainable and can turn profits that will satisfy markets.
The stock has gained 14% this year, on track for its smallest annual gain in four years, as the AI trade broadens out across geographies and sectors.
Reflecting the caution, European tech stocks slipped 1.3% and futures tracking Wall Street’s Nasdaq dipped 0.2% after AI optimism aided gains in the previous session.
Asian tech stocks in Korea and Taiwan closed up over 1% each.
Options data hints at a smaller move after earnings compared to previous profit announcements, suggesting Nvidia’s results are becoming somewhat more predictable.
Analysts expect Nvidia to forecast an 82.8% rise in third-quarter sales to $104.20 billion. Adjusted gross margin for the second and third quarters is expected to remain around 75%.
“Strong revision to guidance could potentially reinforce expectations surrounding huge AI capital expenditure and potentially whether it has further to run or not. That’s not only likely to benefit Nvidia, but also other chipmakers,” Cincotta said.
U.S. INFLATION DATA UP NEXT
Currency markets remained calm with the dollar holding steady after recent weakness as traders awaited the latest U.S. inflation data later on Wednesday, ahead of the Federal Reserve’s Jackson Hole symposium this weekend.
The dollar index, which measures the U.S. currency against six other units, was at 98.95 but set for a 1% decline for August. [FRX/]
Investors have been grappling with the U.S. Treasury department’s efforts to ease pressure on longer-dated bond yields as it expanded its debt buyback program.
“While this will ease overall interest costs at the margin, it does not change the underlying drivers of rising interest payments: the U.S. government’s rising stock of debt and concerns about fiscal dominance/Fed independence,” said Kristina Clifton, an economist at Commonwealth Bank of Australia.
The move has resulted in the pressure shifting to the dollar from the bond market, reviving the debasement trade, in which investors buy assets like gold and bitcoin, betting that government spending and debt will erode the value of currencies.
Spot gold last fetched $4,632.65 per ounce, just shy of the three-month high it touched in the previous session. Bitcoin was 1% higher at $79,025.16. [GOL/]
(Reporting by Ankur Banerjee in Singapore and Johann M Cherian in Bengaluru; Editing by Sonali Paul and Lincoln Feast)
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