This past week saw a mix of economic data and corporate earnings that drove market sentiment. The key event was Nvidia's highly anticipated earnings report on Wednesday, which failed to live up to the hype despite strong results. Meanwhile, economic data painted a mixed picture as investors look ahead to the critical August jobs report.‍

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Australia's August 2024 Earnings Season: A Tale of Resilience and Uncertainty‍

This Australian reporting season has been marked by a mix of unexpected resilience along with a fair bit of uncertainty looking forward, with some sectors showing strength while others navigate challenges.

The banking sector, which plays a more significant role in the Australian economy and market compared to other parts of the world, made the largest contribution to the economy after showing strong overall performance and impressive operational results. However, there is scepticism regarding the valuation metrics of this sector. Many are scratching their head about how investors can make money from this starting point. But still the stock advanced, along with its Big4 Peers.

The performance of the other local heavyweight mining companies painted a more complex picture. BHP Group (BHP detracted from index performance with a -3.62% return as the news out of China, at least for construction, worsened. Fortescue (FMG), South32 (S32), and Mineral Resources (MIN) fared a bit better while the energy sector also faced headwinds, with Viva Energy Group (VEA) and Beach Energy (BEA) recording double-digit negative returns.  Other industrial stocks with a global focus fared better with particularly strong results from Wisetech Global (WTC) and Brambles (BRL).

The domestic economy also presented a tale of two sectors. Consumer spending on discretionary goods remained robust, as evidenced by the impressive returns of JB Hi-Fi (JBH) and Super Retail Group (SUL). However, the consumer services sector told a different story, with Webjet (WEB) and Domino's Pizza Enterprises (DMP) posting negative returns of -11.90% and -6.87% respectively. This mixed picture suggests that while Australians are still willing to spend on goods, they may be more cautious about travel and dining out expenses.

Overall, it was a softish earnings season where expectations of flat earnings were largely met but with a few more ‘misses’ than ‘beats’, especially amongst the larger companies. The outlook was also mixed with scarce evidence of the pick up in activity that many economists had been hoping for.    

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Overseas Earnings – some late winners and losers‍

In other earnings news, Chinese e-commerce giant PDD Holdings plunged after issuing a gloomy outlook amid slowing consumer spending. Dollar General also cratered 32% after missing sales expectations and slashing guidance due to consumer pressures.

On the positive side, Gap posted strong results and higher margins as its turnaround takes hold. Super Micro Computer initially surged on booming AI server sales, but later tumbled on a short-seller report and delayed annual filing.

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Nvidia Disappoints Despite Strong Results‍

Lastly but certainly  not least, Nvidia more than doubled sales and earnings from a year ago, exceeding already high expectations in what was the most anticipated and watched  earnings result of the quarter. However, the magnitude of the beats was smaller than in recent blowout quarters. This, combined with slightly narrower margins due to production issues, led the stock to sell off over 6% last Thursday.

The muted reaction highlights growing investor concerns about the sustainability of massive AI infrastructure spending by Nvidia's big tech customers. While Nvidia continues to dominate the AI chip market, questions remain about whether demand for generative AI services will materialise as quickly as optimists expect. At a $3 trillion market cap, Nvidia faces intense scrutiny. 

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Economic Data Shows Resilience, but Slowdown Signs Emerge‍

In the U.S., core PCE inflation held steady at 2.6% in July, supporting the Fed's ability to start cutting rates. However, consumer spending continues to outpace income growth, raising questions about the sustainability of consumption. Manufacturing activity also remains sluggish based on the ISM report.

European inflation slowed more than expected, with headline CPI down to 2.2%. But core inflation remains elevated at 2.8%, limiting the ECB's ability to cut rates aggressively. Australia saw flat retail sales in July and a sharp decline in business investment, though GDP is still expected to grow modestly in Q2.‍

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Looking Ahead: All Eyes on August Jobs Report‍

As the holiday-shortened week kicks off, investor focus is squarely on Friday's August jobs report. After July's big payrolls miss sparked recession fears, markets are hoping for a "Goldilocks" reading that shows a gradual labour market slowdown without signalling an imminent downturn. The jobs data could determine the path of Fed policy and market direction for the rest of the year.