Stocks Boosted by Nvidia Rally; Dollar Steady
Global stocks reached record highs on Wednesday, sparked by a rally in tech shares. This surge was led by AI chipmaker Nvidia becoming the world's most valuable company. Meanwhile, the dollar stalled due to weak U.S. retail sales data, hinting at a potential rate cut this year. The MSCI's All-World index increased by 0.2% to 805.13, nearing an all-time high of 805.43.
A significant boost in tech stocks on Wall Street, which allowed Nvidia to overtake Microsoft as the world's most valuable company, continued through Asian markets. This uplifted regional tech stocks by 2% to reach record highs. U.S. stock index futures also saw gains, with tech-heavy indexes rising by 0.2% and others by 0.1%. In Europe, the markets remained stable.
Pound Edges Higher on Inflation Data
The British pound saw a slight increase after data revealed that UK inflation returned to the Bank of England's 2% target in May for the first time since 2021. This decrease in inflation is a positive sign for both Prime Minister Rishi Sunak and the Bank of England. However, it might be too late to impact Sunak's chances in the upcoming election or justify a BoE rate cut on Thursday.
Lombard Odier economist Samy Chaar mentioned that UK's 2% inflation and U.S.'s 2.7% inflation (as per the Personal Consumption Expenditures index) support the idea of the Bank of England possibly acting by August and the Fed by September. The sterling was up 0.1% at $1.2722, while the euro remained steady at $1.073, down 1% in June.
Rate Cut Hopes
U.S. retail sales barely increased in May, with previous month figures significantly revised lower. This suggests weak economic activity in Q2 and slightly raised hopes for a rate cut in September. Traders now see a 67% chance of easing compared to 61% previously, according to the CME FedWatch tool. Markets predict 48 basis points of cuts this year.
Vasu Menon, managing director of investment strategy at OCBC, emphasized that the Fed needs more data to support a rate cut and warned investors against overreacting to a few data points. Recent mild U.S. inflation readings contrast with a generally hawkish stance by Fed officials, who now expect only one rate cut this year instead of three quarter-point cuts.
Dollar and Yen Movements
The U.S. dollar index, which measures the currency against six others, was in positive territory at 105.30. The Japanese yen strengthened modestly, causing the dollar to drop 0.1% to 157.70. The yen has lost about a third of its value against the dollar over the last 4-1/2 years due to the significant interest rate gap between Japan and the U.S.
Minutes from the Bank of Japan's April policy meeting showed discussion about the impact of a weak yen on prices. Some policymakers flagged the possibility of raising interest rates sooner than expected if inflation exceeds their targets.
Commodities
In the commodities market, oil prices eased slightly. Brent crude futures dipped by 0.1% to $85.07 a barrel, while U.S. West Texas Intermediate crude fell by 0.3% to $81.35.
This robust performance in the tech sector, combined with potential rate cuts and steadier inflation figures, has painted a mixed yet hopeful picture for global economies.
