Powell's dovish signal on Friday hinted at imminent rate cuts, instantly igniting market enthusiasm. This Friday's PCE price index may determine whether the optimistic sentiment can continue. Additionally, attention should be paid to the impact of NVIDIA's latest earnings report on U.S. stocks this week.

Last Week's Market Review - Powell Gives Green Light for Rate Cuts

Before Powell's Jackson Hole speech, market sentiment was subdued, with U.S. stocks declining from highs for several consecutive days, gold continuously testing 100-day moving average support, and non-USD currencies under broad pressure. Just when investors thought Powell might continue expressing a cautious stance like several of his colleagues, he surprised everyone (including Trump) at this closely watched central bank annual meeting.

Powell stated that inflation remains a threat, but downside risks to the labor market are rising (and potentially very rapidly), effectively giving a green light for September rate cuts and indicating that Powell has made his choice between fighting inflation and protecting employment. It remains unclear whether this represents the Fed's collective view, but internal divisions may continue to intensify as the balance has shifted.

Powell's dovish speech aligned more closely with recent market pricing. Interest rate markets currently expect two rate cuts this year, with September cut probability rising to around 85%. December is expected to see another cut, while market expectations for rate cuts in the next two years are more dovish than on August 15th.

Undoubtedly, the non-farm payrolls data (September 5th) and CPI (September 11th) released before the Fed's September 17-18 meeting will become particularly important, with variables still present.

Following Powell's speech, European and U.S. stock markets rose across the board on Friday, with the Dow Jones reaching a historic high. The Russell 2000 index tracking small-cap stocks surged 3.9% to a yearly high, while the Nasdaq gained nearly 2% in a single day but failed to reverse weekly losses. The dollar index plunged on Friday, breaking below the 98 level and recording its largest single-day decline since non-farm payrolls. The euro reached a near one-month high. Gold jumped to $2,371, temporarily escaping downward pressure.

Weekly Outlook

U.S. July PCE Price Index - Friday 20:30

Investors may need time early this week to digest Powell's Friday speech content, with market trends potentially returning to calm temporarily or experiencing brief adjustments. However, Friday's PCE data will be another major test, with widespread expectations that this PCE reading will remain at 2.6%, while core PCE is expected to rise from 2.8% to 2.9%.

If inflation exceeds 3%, discussions of Fed/Powell "policy mistakes" may emerge in the market, potentially causing a rapid reversal of positive market sentiment.

If data comes in below expectations, there might even be pricing for a 50 basis point rate cut in September, further extending last Friday's market trends of dollar decline and gains in U.S. stocks, gold, and the Australian dollar.

Other economic data this week includes durable goods orders on Tuesday and initial jobless claims on Thursday.

NVIDIA Earnings - Wednesday After Market Close

A research report from MIT last week showed that most corporate AI investments have not yet generated profits, causing investors to question AI prospects again. Therefore, as an AI bellwether and synonym, the importance of NVIDIA's earnings report is self-evident.

Continued increases in capital expenditure by major tech companies guarantee NVIDIA's performance, but chip exports still face policy risks. If positive earnings guidance combines with rate cut expectations, it could drive stock prices and the broader market to continue surging. NVIDIA's stock price has gained 52% year-to-date, significantly outperforming the tech sector and major indices.

Specifically, markets have recently begun worrying again about whether AI capital expenditure (capex) growth might peak in 2026, due to: high capital expenditures on one hand, and emerging concerns on the other, including (1) research suggesting AI deployment lacks return on investment (ROI), and (2) companies' ability to continuously fund AI capital expenditures. Additionally, due to NVIDIA and AMD's lack of upside potential for GPU shipments to China in the short term, investors have begun taking a more cautious approach to AI stocks in the near term.

However, Wall Street's mainstream view remains positive. For example, JPMorgan believes there are no signs of AI investment overheating, with the top four cloud service providers (CSPs) still supporting capital expenditure budgets with growing operating cash flows and sufficient capacity to expand capital expenditures through 2027. Large private AI labs and sovereign funds are also increasing investments, driving continued AI investment growth. AI application scenarios are spreading significantly, especially in consumer AI (enterprise AI remains relatively limited), and adoption of inference models is still in very early stages (only about 6 months since DeepSeek R1's release), bringing extremely strong growth in computing power and token consumption. China's capital expenditure growth has not even truly started, meaning another demand growth pathway.

Institutions believe AI capital expenditure is expected to grow at least 20% in 2026 and expand further in 2027, driven by continued popularization of inference models and the emergence of enterprise-level and agentic AI workloads in 2026-27.

For Chinese concept stocks, this week will see earnings releases from PDD Holdings, Meituan, Alibaba, and others.

XAUUSD Gold 4-Hour Chart Source: TradingView, Forex.com

Gold pulled back slightly in Monday's early trading, making some correction and adjustment to Friday's gains. However, given the Fed's potential dovish shift, 100-day moving average support, and the strong upward pattern shown in the chart, the uptrend is expected to continue after adjustment.

Watch for initial support in the $2,350/57 area below, where multiple moving averages hover and which was a previous battleground between bulls and bears. A break below could see the trend become entangled again. Bulls' targets are resistance at the trendline around $2,380 and the previous high of $2,400.

Gold's one-week implied volatility declined slightly to 13.1%, meaning gold prices will likely fluctuate between $2,309.49-$2,434.43 this week, a range of $62 above and below last Friday's closing price.

NASDAQ 100 Index 4-Hour Chart Source: TradingView, Forex.com

With help from Powell's speech, the Nasdaq 100 index once again found support and rebound momentum near the 200MA on the 4-hour chart. Similar to gold, the index may undergo some adjustment near the trendline in Monday's early trading, but bears will find it difficult to form unified strength in the current environment. Bulls still hold the initiative, and once a breakout is completed, new highs are expected.

NVIDIA's earnings report and the U.S. PCE price index are this week's two key financial events.