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Morning Bid: New highs as Nvidia tops Apple, ECB and BoC easing


Tech-Led Surge Propels Nvidia to Second Most Valuable Company

Wall Street’s tech-driven stock rally has propelled Nvidia (NASDAQ), now valued at $3 trillion, past Apple (NASDAQ) to become the world’s second most valuable company. This surge coincides with growing anticipation of interest rate cuts across the G7 nations.

The European Central Bank (ECB) is expected to follow the Bank of Canada’s recent rate cut, making it the fourth G7 country to ease monetary policy this year. With two more G7 countries likely to follow suit, financial markets are responding with heightened activity.

Despite these moves, the euro and Canadian dollar have remained relatively stable in the currency markets, largely due to renewed speculation about U.S. Federal Reserve rate cuts. Initially, markets had priced in at least six cuts for 2024, but this was reduced to just one by last week. Now, expectations have shifted to two quarter-point reductions starting in September, prior to the U.S. election.

A series of U.S. labor market reports this week, including Friday’s nationwide payroll update, support the view of a cooling economy. Thursday’s updates on weekly jobless claims and May layoffs will be crucial indicators.

The ISM service sector survey for May provided a significant boost to equities, alleviating concerns about economic stalling and fostering hopes for continued disinflation. While manufacturing surveys showed some weakness, the service sector rebounded sharply, with its ‘prices paid’ component easing and employment still contracting.

This positive data propelled the S&P 500 and Nasdaq to new all-time highs on Wednesday, marking their best day in over a month. The 10-year Treasury yield dropped to its lowest level since April 1, and the VIX ‘fear index’ remained subdued below 13.

As of mid-year, the S&P 500 has gained over 12%, the Nasdaq more than 14%, and the equal-weighted S&P 4.5%. This reflects the dominance of tech, particularly in the artificial intelligence (AI) sector.

Nvidia’s market cap reached $3 trillion, second only to Microsoft (NASDAQ), following a 147% stock surge this year. The company is set to implement a ten-for-one stock split, effective Friday, with those holding stock at today’s market close qualifying for additional shares.

However, the New York Times reported that the U.S. Justice Department and the Federal Trade Commission have agreed to proceed with antitrust investigations into the roles of Microsoft, OpenAI, and Nvidia in the AI industry.

Other tech stocks also saw significant gains. Cybersecurity firm Crowdstrike and Hewlett Packard Enterprise (NYSE) rose over 10% on Wednesday, with HPE highlighting strong demand for its AI servers. Dutch chip equipment giant ASML (AS) climbed as well, nearing an agreement with Taiwan’s TSMC to provide advanced machines later this year.

Optimism surrounding the ECB’s rate cut boosted European stocks by nearly 1% on Thursday. The tech sector rose 2%, reaching its highest level since December 2000, with German software leader SAP up 4.5%.

The ECB is expected to cut borrowing costs by 25 basis points from 4%, with President Christine Lagarde’s remarks on future policy moves in focus. Money markets are pricing in 64 basis points of cuts this year, suggesting possibly two more after today’s expected cut.

In Asia, stocks were also higher, with Taiwan outperforming with nearly 2% gains due to the tech buzz, while mainland China underperformed in the red.

Key events that could influence U.S. markets later on Thursday include:

  • European Central Bank policy decision and press briefing
  • U.S. May Challenger layoffs data, weekly jobless claims, and April international trade balance; Canada April trade data
  • U.S. Treasury Secretary Janet Yellen’s keynote remarks at the Financial Stability Oversight Council in Washington
  • U.S. Treasury’s 4-week bills auction
  • U.S. corporate earnings reports, including JM Smucker (NYSE)
  • European Parliament elections commencement

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