Asian stocks hesitant before Nvidia, oil slips on Hormuz hopes

Asian stocks showed reluctance on Wednesday as oil prices declined, causing bond yields to fall on hopes that the critical Strait of Hormuz might reopen, while investors prepared for another critical earnings report from AI leader Nvidia. Iran reported that it had resumed negotiations with Oman to manage the Strait, amid growing economic strain from U.S. President Donald Trump's six-month conflict, which has shaken oil markets and heightened global inflation worries.

Brent crude futures underwent a third consecutive day of decline, dropping over 2% to $86.41 per barrel due to the possibility of increased supply through the strait, which handles a fifth of the world's traded oil before the war. This contributed to bond yields dropping, with the yield on US 10-year notes falling to 4.634% after declining 6.5 basis points the previous day.

Although there was no concrete progress or details about the Iran-Oman deal, as Iran reiterated that Hormuz would remain closed until conditions were met, market sentiment indicated optimism over an interim announcement, according to analysts at J.P. Morgan.

Investors became cautious ahead of Nvidia's second-quarter earnings later in the day, focusing on whether the massive AI spending boom can be sustained and generate profits that would satisfy markets. MSCI's Asia-Pacific index outside of Japan was up 0.12% in early trading, with an expected 2% increase for the month. Japan's Nikkei was down 0.4%, while the tech-heavy KOSPI fell 0.2%.

Nasdaq futures dropped 0.5%, and European futures remained flat in Asian hours. Charu Chanana, chief investment strategist at Saxo in Singapore, stated that Nvidia is nearing a point where beating expectations is expected, making the headline numbers alone insufficient for determining market reaction. The key factors now are the size of the beat and whether guidance is robust enough to keep earnings expectations moving upward.

Chanana noted that options data hints at a smaller price move following earnings compared to previous profit announcements, implying that Nvidia's results are becoming more predictable. Analysts expect Nvidia to report an 82.8% increase in third-quarter sales to $104.20 billion and an adjusted gross margin of around 75% for both the second and third quarters.

J.P. Morgan analysts believe Nvidia's earnings release will likely support the AI trade, although it may not provide a significant near-term boost to the semiconductor sector.

Meanwhile, US inflation data awaited investors, with the dollar index steady as traders prepared for the latest US inflation data later in the day, ahead of the Jackson Hole symposium this weekend. The dollar index, measuring the US currency against six others, was at 98.934 but expected to decline by 1% for August. Rising interest payments due to the US Treasury's efforts to ease pressure on longer-dated bond yields through its debt buyback program have shifted the focus from bonds to the dollar, reigniting the debasement trade, where investors purchase assets like gold and bitcoin, anticipating that government spending and debt will diminish currency value.

Spot gold closed at $4,646.08 per ounce, just below the three-month high it reached in the previous session. Bitcoin rose 0.6% to $78,704.