A look at the day ahead in U.S. and global markets from Mike Dolan
Yet another quarterly earnings beat from AI-chip behemoth Nvidia (NASDAQ:) catapulted Wall St stock futures higher again on Thursday – batting away hawkish Federal Reserve meeting minutes, military tension around Taiwan and news of a July UK election.
Nvidia’s extraordinary boom on the scramble for artificial intelligence showed little sign of faltering and its stock – which now accounts for over 5% of the entire capitalization – soared 7% out of hours after its latest update.
The firm forecast second-quarter revenue of some $28 billion, almost $2 billion above analysts’ estimates, and it announced a 10-for-1 stock split. Its shares, which have tripled over the past year, jumped above $1,000 in extended trade and added another $140 billion in stock market value.
The news has been enough to lift S&P500 futures out of Wednesday’s mild funk and they were up about 0.5% ahead of Thursday’s bell. are up almost 1%.
And the ongoing rise of Wall Street to ever higher records has seen implied equity volatility crater, with the “fear index” plumbing its lowest since November 2019 on Thursday at just 11.54.
Perhaps even more remarkable given the stubborn Fed noises, equivalent Treasury market volatility gauges are also subsiding and the MOVE index fell to its lowest since February 2022 – before the Fed tightening campaign started.
That may be partly due to the fact that U.S. central bank appears to prepared to leave interest rates unchanged for several more months. Indeed some private sector bankers, such as Goldman Sachs boss David Solomon, now see no rate cut this year.
While there were signs from its latest meeting minutes on Wednesday that some hawkish policymakers were willing to lift rates again if necessary, not least due to a loosening of financial conditions evident in surging stocks, the impact was muted as the meeting was before the softer April inflation data.
As a result U.S. Treasury yields ticked up only modestly, with rates markets now homing in on weekly jobless numbers and May business surveys later on Thursday for guidance.
Softness in housing data on Wednesday also kept up hopes for a cooling economy, and futures markets still retain 40 basis points of Fed easing for 2024 – significantly more than the 34 bps money markets now seen from the Bank of England.
UK ELECTION
Stickiness in “core” UK April inflation readings on Wednesday have wiped out hopes of a June BoE rate cut and even left an August move in the balance – complicated perhaps by the surprise announcement of a British election for July 4.
Although a win for the opposition Labour Party is widely expected – with opinion polls showing it more than 20 points clear of the ruling Conservatives, and betting markets ascribing a 90% chance to Labour leader Keir Starmer becoming prime minister – sterling volatility perked up to some degree.
Two-month implied volatility for the euro/sterling pair popped up half a point to more than 4% for the first time in a month.
But the inflation news and BoE rethink was more dominant in rates pricing, with gilt yields backing up and sterling rising to its highest in two months.
The UK stock market fell only 0.5% after the election announcement on Wednesday, although an index of UK utilities shares fell almost 6% today on possible political risk in the sector.
On the data front, euro zone May business surveys showed activity expanded at its fastest pace in a year this month – while UK equivalents slowed.
In Asia, Chinese shares underperformed with losses of more than 1% in mainland and Hong Kong shares.
Geopolitical tensions kept investors nervous as China’s military started two days of “punishment” drills held in five areas around Taiwan just days after Taiwan President Lai Ching-te took office.
U.S. Treasury Secretary Janet Yellen said on Thursday that G7 finance ministers will discuss their concerns about China’s excess industrial capacity and potential responses, adding that without policy changes in Beijing their economies will be hit with a flood of cheap Chinese goods.
“This week will be a key opportunity to discuss how China’s macroeconomic imbalances and industrial overcapacity can affect our economies,” Yellen told a news conference ahead of a Group of Seven finance meeting in Stresa, Italy.
Key diary items that may provide direction to U.S. markets later on Thursday:
* U.S. April weekly jobless claims, May flash business surveys for the U.S. and around the world from S&P Global, US April new home sales
* G7 Finance Ministers and Central Bank Governors meet in Stresa, Italy
* Atlanta Federal Reserve President Raphael Bostic
* U.S. corporate earnings: Intuit (NASDAQ:), Medtronic (NYSE:), Ross Stores (NASDAQ:), Deckers Outdoor (NYSE:)
* U.S. Treasury auctions 10-year inflation-protected securities, 4-week bills
(By Mike Dolan; Editing by Alison Williams; [email protected])
