Jackson Hole, Nvidia, PCE Data: A 'Big Week' Begins — Where Do Stocks Go?

Since oil prices have risen quickly recently, profit-taking is currently appearing, but if the sanctions expansion materializes, there remains room for oil prices to rebound further.

This is interpreted as the market pricing in concerns about dilution of value for existing shareholders.

Previously it was expected to issue short-term bills to fund long-term purchases, but using TGA cash presents a new possibility of easing long-term rate pressure without the burden of new issuance.

However, this measure does not fully resolve the fiscal deficit problem itself, though it is expected to ease the near-term burden of Treasury issuance.

China's e-commerce company PDD Holdings posted revenue of 112.4 billion yuan, falling short of market expectations. However, net income of 27.2 billion yuan beat forecasts, and the stock rose 4.6% in pre-market trading. Analysts attribute this to expectations of improved profitability outweighing concerns about weak revenue.

However, growing scrutiny of Chinese low-price shopping platforms in global markets is pointed out as a risk going forward.

Over the past week, semiconductor stocks broadly weakened. Nvidia fell more than 4.6%, Broadcom dropped 6%, and AMD fell 8%. In contrast, healthcare stocks were generally strong, supported by positive news on Moderna's cancer vaccine.

This suggests a sector rotation is underway, with some funds that had concentrated in tech moving into pharmaceutical and defensive stocks.

Expectations for expanded Treasury buybacks of long-term bonds and the possible use of the TGA account have raised hopes for rate stabilization, as they suggest long-term bond purchases may be possible without short-term issuance. However, there are concerns that if rates rise again, the pressure on tech stocks seen last week could return.

Given the characteristic sensitivity of growth stocks to rate volatility, this is expected to be a key variable for the market.

This Wednesday, the July PCE price index, which the Federal Reserve weighs most heavily when setting interest rates, and the revised Q2 GDP are scheduled for release. These indicators will serve as important yardsticks for gauging inflation trends and economic growth. On Friday, Fed Chair Kevin Warsh is scheduled to speak at the Jackson Hole Symposium, drawing intense market attention.

The speech is expected to offer hints on how high the Fed will keep rates and the future direction of monetary policy. If the Fed's high-rate stance is confirmed, market volatility could increase significantly.

These key economic indicators and remarks from Fed officials are expected to play a decisive role in determining the direction of stocks this week.

A key focus will be whether big tech companies keep up their AI data center spending. If Nvidia's guidance falls short of market expectations, debate over AI investment overheating could grow, adding pressure for a broader stock market correction.

Nvidia's results are expected to serve as a yardstick for the AI industry as a whole, beyond the performance of a single company.

Nvidia's stock has tended to fall after earnings releases in 6 of its last 8 reports, and in 4 consecutive recent ones. Analysts attribute this to the fact that even with solid results, expectations were set so high that they were already priced into the stock.

In other words, good results alone are hard to drive a stock higher; a surprise that exceeds the market's high bar is needed.

Moving beyond the focus on large language models (LLMs), the rise of small language models could accelerate the democratization of AI technology.

This could expand AI demand, previously limited to big tech companies, to a broader customer base including enterprises and developers, creating new market opportunities for Nvidia. Because small models are optimized for specific purposes, they are efficient and cheaper, enabling more companies to adopt AI.

This creates T-bill demand roughly ten times that of banks, forming a new strategic link to the Treasury market.

Notably, the discussion of stablecoin support since the Trump administration is believed to have taken this connection to the Treasury market into account. Stablecoins serve as a bridge between digital assets and traditional finance and hold the potential to supply new demand to the Treasury market.

This projection signals the growing importance and growth potential of stablecoins in financial markets.

However, some argue it is still uncertain whether this figure can actually be realized, since variables such as changes in the regulatory environment and market acceptance could affect the pace of growth.

The judgment is that by creating new demand for Treasuries, stablecoins could help lower upward pressure on 10-year and 30-year long-term rates, to which the market has been most sensitive recently.

This is expected to bring foreign capital into the US Treasury market through stablecoins, spreading out the market burden from large-scale issuance and enabling stable financing. As a result, expansion of the stablecoin ecosystem could also have a positive effect on US fiscal soundness.