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Team Asset Management present their weekly round-up of global markets
STOCKS were pushed and pulled by familiar forces last week – stubborn inflation, higher interest rates, slow progress towards a deal on raising the US debt ceiling and corporate earnings.
US stocks outperformed and the blue-chip S&P500 and technology-focused Nasdaq indices gained 0.3% and 2.0% respectively. However, most European indices declined, including the FTSE 100, which fell 1.9%.
Ahead of the release of its quarterly earnings report on Wednesday evening, Nvidia shares had already gained more than 100% this year amid the artificial intelligence frenzy which is gripping investors. The bar was set high but the US chipmaker still managed to blow away analysts’ forecasts and its shares gained another 24% in Thursday’s trading session. By the end of the week, its market value had surged to $962 billion, on the cusp of joining Apple, Microsoft, Alphabet and Amazon in the $1 trillion market cap club.
In the three months to the end of April, Nvidia generated revenue of $7.2 billion, 19% ahead of the previous quarter and significantly higher than consensus forecasts of $6.5 billion. However, it was the bullish outlook from its chief executive, Jensen Huang, that sent analysts scrambling to increase their price targets for the stock.
Nvidia has a dominant position in the market for chips used in AI technology and Huang revealed that the company had ‘significantly increased our supply to meet surging demand’ and expected to generate revenue of $11 billion in the next quarter, around 50% higher than the previous three months.
The Nvidia results also pulled other semiconductor manufacturers high, including Advanced Micro Devices, Applied Materials and Marvel Technology. The Philadelphia Semiconductor Index, which tracks the world’s largest chip makers, climbed to a 14-month high.
US stocks more generally were lifted by the progress on the country’s debt ceiling. Over the weekend, President Biden and House Speaker Kevin McCarthy announced a compromise agreement had been reached to suspend the $31 trillion debt ceiling until January 2025 to remove the threat of a first-ever government debt default.
Democrat negotiators agreed to some Republican demands to broadly freeze discretionary Federal government spending for 2024, except for defence spending which will increase by 3% and benefits for military veterans. Congress will vote on the deal this week and, despite opposition from some Republican lawmakers, it is expected to be passed by the Senate and the House.
Annual consumer price inflation in the UK slowed to 8.7% in April, the first time it has been below double digits since August. However, it remained higher than the Bank of England’s forecast of 8.4% and the core rate, which excludes more volatile items such as food and energy, surprisingly accelerated to 6.8%, from 6.2% in March.
Prior to the release of the data, Bank of England Governor Andrew Bailey admitted to the House of Commons Treasury select committee that the bank had lessons to learn and that second-wave pressures from higher wages would probably mean that inflation slows more gradually towards the 2% target rate than its models predicted.
Markets interpreted the data and comments to mean interest rates would need to be raised further to curb inflation. Going into last week, money market futures markets were pricing in one or two more quarter percentage point rate hikes. They now expect at least four more, taking the base rate to 5.5% by November.
Brent crude prices edged higher for a second straight week to $77 a barrel, on optimism over a deal on the US debt ceiling. However, the number of short positions and traders betting prices will fall, continued to increase ahead of the Opec+ policy meeting on 4 June. Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman warned that speculators needed to watch out, suggesting more production cuts were on the table.
