New highs as Nvidia surpasses Apple, ECB and BoC easing

A Day Ahead View in US and Global Markets by Mike Dolan

The rise of tech-led stocks on Wall Street to new records has seen $3 trillion AI champion Nvidia replace Apple as the world’s second most valuable company in a market infused with enthusiasm for cutting interest rates. interest across the G7.

With the European Central Bank set to follow the Bank of Canada on Thursday with its first interest rate cut of the cycle, four countries in the G7 economic bloc will be in easing mode – with two more due later this year.

Balancing them all, currency markets are coping – with the euro and Canadian dollar relatively calm on foreign exchanges despite the moves.

This is mainly because speculation about Federal Reserve rate cuts is also stirring again. After going from pricing at least 6 cuts in 2024 at the start of the year to just one last week, Fed futures markets are now settling on two quarter-point cuts – starting in September , before the elections.

A series of reports on the U.S. labor market this week support the argument that the economy is cooling, with Friday’s national payroll update expected to be the decision and with updates on weekly job benefit claims. unemployment and the May layoffs scheduled for Thursday.

But the report that really catalyzed the latest surge in stocks to new records was last month’s ISM services sector survey, which both dispelled concerns about a stagnant economy and encouraged hopes of continued disinflation.

Although sister surveys for the manufacturing industry show signs of instability, the services sector recovered sharply in May, with its “prices paid” component slowing and the employment reading still contracting.

Maybe something for everyone – certainly enough to catapult the S&P500 and Nasdaq to new all-time highs on their best day in more than a month and drag 10-year Treasury yields to their lowest level since April 1.

The VIX ‘fear index’ is moderating below 13 and S&P futures held on to gains before Thursday’s bell.

Half-year scores are 2024-to-date gains of over 12% for the S&P500, over 14% for the Nasdaq, and 4.5% for the equal-weighted S&P.

All it shows is that technology and its relentless theme of artificial intelligence are taking over once again.

Achieving a market cap of $3 trillion for the first time, which puts it second only to Microsoft, after a 147% rise in shares this year, Nvidia has reached new highs and pulled the entire complex of AI companies with it.

Part of the latest confusion comes because Nvidia is preparing to split its shares ten-for-one, starting Friday, and those holding shares at market close today will qualify for nine additional shares in the chip group.

The story continues

In a possible eyebrow-raiser, however, the New York Times reported that the U.S. Department of Justice and the Federal Trade Commission have reached an agreement that allows them to pursue antitrust investigations into the dominant roles that Microsoft, OpenAI and Nvidia plays in the AI ​​industry.

Other earnings-related increases included gains of more than 10% on Wednesday for cybersecurity firm Crowdstrike and Hewlett Packard Enterprise, with the latter signaling strong demand for its AI servers.

But the technology crisis didn’t just occur on Wall Street. Shares in Dutch chip equipment giant ASML also rose following reports that it was closing in on a deal with Taiwan’s TSMC to supply its most advanced machines later this year.

Helped by the ECB’s optimism about a rate cut, European stocks rose almost 1% on Thursday – with the technology sector rising 2% to its highest since December 2000, and German software leader SAP , rising 4.5%.

In a well-signaled move, the ECB is expected to reduce funding costs by 25 basis points from 4%, and President Christine Lagarde’s remarks on the trajectory from here will now be in focus. Money markets are forecasting cuts of 64 basis points this year – suggesting possibly two more after today.

With the start of the European Parliament elections in the background, European government bond yields held steady ahead of the ECB’s decision.

Stocks also rose across Asia, with Taiwan outperforming, with gains of almost 2% due to technology buzz, and mainland China again underperforming in the red.

Main daily items that could guide US markets later this Thursday:

* European Central Bank policy decision, press conference

* US May Challenger layoffs data, weekly jobless claims, April international trade balance; April trade in Canada

* US Treasury Secretary Janet Yellen delivers key remarks at the Financial Stability Oversight Council in Washington

* US Treasury sells 4-week bonds

* US Corporate Profits: JM Smucker

* Elections for the European Parliament begin

(Reporting by Mike Dolan, Editing by Christina Fincher, mike.dolan@thomsonreuters.com)