Two moments on this week's calendar could have given markets something to hold on to. The first was a set of quarterly results on Wednesday evening, the second a speech on Friday afternoon. By Thursday morning everyone knew exactly what Nvidia expects of the next eighteen months. At the time of writing, markets are still waiting to hear what the Fed chair thinks about the next four weeks.
That inversion defines the week. The clearest forward view came from a chipmaker rather than a central bank. And the calm in the bond market came from the Treasury rather than from monetary policy.
Yields eased, but not because of the Fed
The week opened where the last one ended, with long yields sitting just below their highest level since 2007. Monday turned that around. CNBC reported that the Treasury is considering using its account at the Fed, the General Account holding more than a trillion dollars, to fund repurchases of long dated paper. The ten year yield fell more than seven basis points on Tuesday to 4.625 percent. The thirty year came back to 5.20 percent, against 5.31 percent on 17 August.
It is worth pausing on what happened here. Two weeks ago the Treasury intervened directly by doubling its buyback programme. That intervention held for barely two sessions. This week a report about how the same programme might be funded was enough to bring yields down. Markets are not responding to the policy itself. They are responding to the signal that Washington remains willing to step in.
That is a fragile kind of calm. A bond market that settles because the Treasury wants to be a buyer is not the same as a bond market that settles because investors have revised their inflation outlook. Yields stabilised on Thursday, helped by jobless claims easing to 203,000, but the underlying question went unanswered.
Inflation that has stopped moving
Wednesday morning brought the inflation gauge the Fed actually watches. The PCE price index rose 0.2 percent on the month in July, leaving the annual rate at 3.7 percent. Both figures came in a tenth of a percentage point above consensus. Core inflation landed exactly on forecast at 0.2 percent monthly and 3.3 percent annually.
The problem is not this month's miss but the pattern around it. Core PCE stood at 3.3 percent in April, 3.4 percent in May, 3.3 percent in June and 3.3 percent again in July. Four months of data have produced almost no net progress. The shock from the spring energy disruption has stopped getting worse, but the return toward two percent has stalled a long way above it.
Under the surface, goods prices actually fell 0.1 percent, driven by a 2.7 percent decline in energy related goods. Services rose 0.3 percent, with financial services and insurance up 1.2 percent. That is precisely the kind of inflation that moves slowly and pays little attention to the oil price.
Futures markets now price a 38 percent chance of a rate increase in September. For December that probability sits above seventy percent. Markets do believe a hike is coming. They simply do not agree on when.
Nvidia did look ahead
After Wednesday's close, Nvidia reported revenue of 96.2 billion dollars, more than double a year earlier, with earnings of 2.22 dollars per share. The outlook mattered more than the quarter. For the current period the company guided to 108 billion dollars against an expected 104.2 billion. Chief financial officer Kress attached a seventy percent revenue growth figure to fiscal 2028. Huang added that demand exceeds that number and that supply is the binding constraint.
The stock rose 8.7 percent on Thursday. The Nasdaq gained 1.4 percent, the S&P 500 0.7 percent and the Dow just over a hundred points. The move extended well beyond semiconductors. Salesforce rose more than 21 percent on a strong outlook and an ETF tracking software companies gained 6.5 percent the same day. For the first time in weeks, a rally arrived that was not driven by rates.
Two qualifications belong with it. Gross margin was 75 percent last quarter and is guided down to 74 percent as memory and wafer costs rise. And the outlook again excludes any data centre revenue from China. The company is growing quickly, but on a narrower base than the share price reaction suggests.
Oil retreated when the sanctions disappointed
On Monday, Secretary Bessent announced the Iran sanctions package markets had spent weeks anticipating. The measures covered dozens of individuals, entities and vessels, but left the major buyers and their banks untouched for now. No timeline was given and no list of countries. The reaction followed accordingly. Brent fell more than three percent on Tuesday to around 89 dollars and traded below 87 dollars on Thursday after four consecutive declines.
Alongside that, Iran and Oman reached an understanding over their respective shares of the waters of the Strait of Hormuz and the associated revenues, with technical talks continuing on a temporary transit corridor. Tehran cautioned immediately that reopening the strait requires more than an agreement with Oman. By Friday Brent was back above 88 dollars, this time on reports of escalation on the Russian side in Ukraine. On the week, oil finishes lower.
Gold traded near 4,600 dollars per ounce and gave ground on Wednesday as the firmer inflation print raised the odds of a hike. Across August the metal is nonetheless up almost fourteen percent, driven by a weaker dollar and concern over sovereign debt levels. The record near 5,600 dollars set in January remains some distance away.
Where this leaves the markets
This week markets got from a company what they cannot get from a central bank. Nvidia named a specific growth rate for a fiscal year that does not begin for another six months. The Fed has declined since May to say anything about its next meeting. That contrast explains why equities could rally on corporate news this week while the rates market stayed dependent on Treasury intervention.
Warsh speaks at Jackson Hole on Friday afternoon for the first time. A Bank of America survey found 69 percent of fund managers expecting a neutral tone. That is exactly what makes the speech risky, because a neutral message is already in the price. Analysts at Standard Chartered argued he will need to state plainly that rates go up if core inflation does not come down, if he wants to restore confidence in the bond market. At the time of writing he has not yet spoken.
After that the reference points are set. The August payrolls report arrives in early September, followed by the inflation data and the meeting on 15 and 16 September. Until then the picture is unchanged: an equity market trading on earnings growth and a bond market trading on inflation, with nobody available to reconcile the two.
