Nasdaq futures cautious ahead of Nvidia earnings, inflation data

Nasdaq futures are edging lower in cautious trade ahead of US inflation data and Nvidia's earnings after the close today.

The tech-heavy index gained 0.7% on Tuesday, helped by lower Treasury yields and a recovery in chip stocks.

The 10-year Treasury yield eased to 4.6%, while the 30-year fell to 5.176%. Oil prices also dropped 3%, easing some of the immediate pressure on inflation expectations.

The bond market suggests the Treasury's buyback plans are providing some relief. Reports that the department could use its nearly $1 trillion general account to fund further purchases have helped pull yields lower and calm some of the recent concerns around long-term borrowing costs.

However, the 30-year yield remains above 5%, a level investors will want to see break decisively lower before sentiment improves more meaningfully.

Nvidia earnings

The main event today is Nvidia's earnings after the close.

Expectations are for revenue of around $91 billion and EPS of $2.08, representing close to 100% year-on-year growth in both measures.

But at this stage, simply beating expectations is unlikely to be enough. Nvidia is already up around 12% this year, roughly in line with the S&P 500, so the market needs evidence that growth can remain this strong.

Guidance is therefore likely to matter more than the headline Q2 numbers. Nvidia is expected to deliver its first $100 billion-plus revenue quarter in Q3, meaning investors will want to know whether demand for its latest-generation chips can continue at this pace.

The bigger question is whether the AI investment boom is sustainable.

Nvidia has become a bellwether for the entire AI trade, so stronger demand or an upward revision to guidance could reinforce expectations that the huge AI capital expenditure cycle still has further to run. That would not only benefit Nvidia and other chipmakers, but could provide a broader lift to technology stocks and market sentiment.

Macro backdrop

While lower yields and the chip recovery helped drive yesterday's gains, today's move has another test.

Core PCE, the Fed's preferred inflation gauge, and Q2 GDP are both due today. Expectations are for core PCE to remain unchanged at 3.3% and headline PCE to ease to 3.6% from 3.17% in June. The data could help determine whether Tuesday's rally was simply a relief move following the recent sell-off or whether there is stronger fundamental support behind it.

Then comes the week's biggest macro event: Federal Reserve Chair Kevin Warsh's speech at Jackson Hole on Friday.

By then, investors will have the latest inflation and growth data, as well as Nvidia's results, to digest. That leaves Warsh with the potential to tie the week's major themes together — inflation, growth, financial conditions and the outlook for interest rates. However, Warsh’s dislike of forward guidance raises some questions over whether the market may be underwhelmed by his speech.

For the Nasdaq, the setup is therefore fairly clear: lower yields provide the near-term support, but Nvidia needs to deliver strong guidance and the economic data needs to avoid reigniting inflation fears if the recovery is to extend.

Nasdaq technical analysis

After running into resistance at 30,250, the Nasdaq formed a lower high and turned lower, testing support around the 50 EMA at 29,150. The RSI is neutral, providing few clues on near-term direction.

Should the 50 EMA hold, buyers could look to recover towards 30,000. A break above 30,250 would create a higher high, bringing 30,750 and fresh record highs into focus.

A meaningful break below the 50 EMA and 29,000 would open the door to 28,240, the June low, before exposing the 200 EMA at 27,250.