FX168 Financial News (Europe) — During the European trading session on Thursday (May 23), global stock markets rose. The blowout earnings announced by Nvidia strengthened market confidence that the global artificial intelligence boom will continue to drive the stock market, and US stocks are expected to reach record highs. However, the prospect that interest rates may remain high for a longer period of time has dampened investors' optimism.
The European Stoxx 600 Index rose 0.2%, led by well-known technology stocks such as Asmack Holdings, ASM International, and BE Semiconductor Industries NV.
The positive performance of the Morgan Stanley Capital International Global Index was due to the rise in European stock markets. Among them, technology stocks performed better than the Stoxx 600 Index.
S&P 500 futures rose 0.5% and Nasdaq 100 futures rose 0.8%, boosted by Nvidia's higher-than-expected performance and sales forecasts, and the stock has risen 200% since this time last year. In pre-market trading in New York, Nvidia rose about 7%, and peers such as ultra-microcomputers and Chaowei Semiconductor (AMD) were also boosted.
Nvidia saved the market
After the market on May 22, Nvidia announced the results for the first fiscal quarter of the 2025 fiscal year ending April 28. It achieved revenue of 26 billion US dollars for the quarter, a sharp increase of 262% year on year and 18% month on month, and a record high of single quarter revenue; net profit was US$14.881 billion, up 21% month-on-month and 628% year-on-year. Data center revenue increased 427% year over year to US$22.6 billion, with market expectations of US$22.1 billion, a record high. Revenue is expected to increase to $28 billion in Q2, and the market is expecting $26.8 billion.
Additionally, Nvidia announced that the 10-1 split will take effect on June 7, 2024; increase the quarterly cash dividend from 4 cents to 10 cents per share; and increase the quarterly cash stock dividend by 150% to 0.01 US dollars per share after the split.
Wall Street predicts that Nvidia's quarterly sales volume at the end of the current fiscal year in January next year will break through the 30 billion US dollar mark. Revenue for the second fiscal quarter may further increase to 26.67 billion US dollars, and revenue for the entire fiscal year may rise above the integer level of 110 billion US dollars. Last fiscal year's revenue increased 126% year over year to a record high of US$60.9 billion.
Robert Alster, chief investment director at Close Brothers Asset Management, said, “For anyone who doubts that artificial intelligence and supply chain growth are fading, Nvidia's performance, tone, and guidance completely refute this argument.”
Pascal Koeppel, Chief Investment Officer of Vontobel Swiss Financial Advisors, said, “Nvidia's data is excellent, but now the market is very narrow. You can only invest in one industry. Judging from history, it is very risky to invest in just one industry.”
“Before 2008, we saw this situation in many industries such as petroleum and banking,” he said. “As an investor, you should diversify your investments a little bit.”
The Bloomberg Asia Chipmakers Index jumped 1.9%, hitting a three-year high, thanks to South Korea's $19 billion stimulus package to revitalize its semiconductor industry.
The Federal Reserve's hawk is scary
Nvidia's impressive performance overshadowed the haze of the minutes of the Federal Reserve meeting. The minutes of the latest policy meeting released by the Federal Reserve on Wednesday reflect that interest rate makers believe that it will take longer than previously anticipated for the inflation rate to return to the target level of 2%.
On May 22, the Federal Reserve released the minutes of the April 30-May 1 interest rate meeting. The minutes show that after the US inflation data fell short of expectations for three consecutive months, Federal Reserve officials believe that interest rates will need to stay high for longer than previously anticipated. Many policymakers intend to raise interest rates further once the risk of inflation is rekindled.
Regarding the minutes of this meeting, reporter Nick Timiraos, known as the “New Federal Reserve News Agency,” wrote that the US inflation data for three consecutive months released as of April was disappointing, and the reduction in inflation was a setback. Therefore, Fed officials expect to wait longer to cut interest rates, and some officials are still open to raising interest rates when inflation is rising at an accelerated pace.
According to the article, the Federal Reserve officials concluded that the current high interest rates need to be maintained longer than they had anticipated. They still believe that interest rates are high enough to curb economic activity and reduce inflation, but it suggests that the extent of policy restrictions is not that certain. However, it was pointed out at the end of the article that the April inflation data released by the Federal Reserve after the meeting suggests that price pressure has not yet accelerated again, which makes people feel more at ease about the prospect that the Federal Reserve will not need to raise interest rates again.
The minutes of the Federal Reserve's latest policy meeting were stronger than expected, the UK inflation data was worrying, and the New Zealand Federal Reserve made a sober assessment of the inflation issue, all of which prompted investors to lower their bets on the speed and scale of expected global interest rate cuts this year.
“Looking at the past 24 hours, one interesting thing that can be eliminated is the uncertainty about the central bank's policy settings, what level interest rates must be kept at, and what level they may need to maintain in order to curb inflation,” said Kyle Rodda, a senior financial market analyst at Capital.com. “From a policy perspective, this has created uncertainty, but from a market perspective, it is clearly also causing uncertainty.”
The US dollar is currently trading near a one-week high and is expected to record its best weekly performance since the beginning of April. US Treasury bonds fell further after falling on Wednesday.
Eurobond yields also generally rose, as the purchasing managers' index (PMI) showed that private sector business activity reached its highest level in a year, indicating that the economic rebound is taking hold.
Rob Wood, chief British economist at Penson Macro, said that the important news from the UK purchasing managers' survey in May was that output price inflation once again fell to its lowest level since February 2021. He pointed out that this gave the Bank of England hope that service inflation will slow again in the next few months, while the 5.9% surge in April was mainly due to annual price resets.
He warned: “However, we doubt that interest rate makers are willing to fully trust the PMI data. Given that economic growth is still strong, [the Monetary Policy Committee] is under little pressure to cut interest rates quickly.” Wood added that Penson Macro expects the Bank of England to take the lead in cutting interest rates in August and then cut interest rates every quarter.
The pound strengthened, and the yield on British 10-year treasury bonds rose further. The inflation data previously released on Wednesday was higher than expected, causing traders to delay the Bank of England's first interest rate cut. The pound rose to a two-month high against the US dollar and is currently up 0.1% to 1.2735. Investors have lowered their bets that the Bank of England will cut interest rates next month, from 50% to around 10%.
According to a survey, business activity in Germany increased for the second month in a row in May, supporting confidence that the largest economy in the Eurozone may be improving. The euro was boosted and rose 0.2% against the US dollar to 1.084 US dollars.
In the UK, Prime Minister Rishi Sunak (Rishi Sunak) announced on Wednesday that a national election will be held on July 4, surprising the market and other members of parliament.
In the commodity market, gold and copper prices have declined further from recent record highs, and crude oil futures have also declined, probably for the fourth consecutive trading day.