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Marketmind: Tech-led U.S. 'exceptionalism' underlined

[February 15, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

If you needed an illustration of U.S. economic "exceptionalism", then simply contrast its still-booming economy with this week's news that Japan and Britain entered technical recession late last year while the euro zone flatlined.

At least part of that blistering outperformance against most other G7 economies is related to its stellar technology sector, infused again over the past year by "re-shoring" of chip production and an artificial intelligence boom.

Chipmaking giant Nvidia once again stole the show on Wednesday, with another 2.5% jump seeing its market cap leapfrog that of Alphabet to make it America's third most valuable firm behind Apple and Microsoft.

And despite the early week wobble on a hot inflation reading for January, which briefly dampened interest rate cut hopes, Wall St stocks rallied strongly on Wednesday and futures have held those gains overnight. Thursday's long list of economic health checks, including January retail and industry readouts, now provide the next juncture.

The S&P500 jumped back almost 1% to recapture the 5,000-point milestone. It wasn't just led by the tech-heavy Nasdaq - the Russell 2000 small cap index roared back almost 2.5% as rate cut worries eased somewhat.

But, Nvidia aside, the fizz in individual tech names continued. Uber surged almost 15% to a record high, boosted by a $7 billion share buyback plan, while Lyft soared 35% after its profit beat estimates and it flagged positive free cash flow for the first time this year.

On Thursday, the relatively darker macro picture overseas set the tone.

Japan said its economy unexpectedly slipped into recession at the end of last year, losing its title as the world's third-biggest economy to Germany and raising doubts about when the Bank of Japan will begin to exit its decade-long ultra-loose monetary policy.

Despite the implications for BOJ policy, the yen firmed back toward the 150 per dollar level - with markets still wary of this week's central bank warnings of excessive currency weakness.

But neither the firmer yen nor negative GDP update could stop Tokyo stocks, where chip fever also helped lift the Nikkei to a new 34-year peak that now leaves the index less than 2% from the record set back in 1990.

Chip-making equipment giant Tokyo Electron contributed the most, with a 5% jump. Artificial intelligence-focused startup investor SoftBank climbed 3.6%. Corporate earnings also produced some outsized winners, with green energy company Ebara and e-commerce company Rakuten surging nearly 16% each.

The dour macro mood in Britain, meantime, held little of that stock market fillip for a flat FTSE.

Britain's economy fell into a recession in the second half of 2023, a tough backdrop ahead of this year's expected election for Prime Minister Rishi Sunak. GDP contracted by 0.3% in the final quarter having shrunk by 0.1% between July and September.

The fourth-quarter contraction was deeper than all economists' estimates in a Reuters poll.

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 12, 2024. REUTERS/Brendan McDermid

What seems like a shallow technical recession just reinforces a deeper longer-term funk for the UK economy, where the National Institute of Economic and Social Research points out that GDP has now declined between the first quarter of 2022 and the final quarter of 2023 and GDP per head remains lower than pre-COVID levels.

For the Bank of England, the news will heap pressure on it to ease interest rates this year despite above-target inflation - that at least didn't rise again last month as expected.

Flirting with its lows of the year against the dollar, sterling ticked lower again on Thursday while gilt yields fell.

The U.S. interest rate picture softened again, meantime, as more dovish Federal Reserve officials deflected away from the consumer price inflation surprise earlier in the week.

Chicago Fed President Austan Goolsbee said on Wednesday the Fed's path back to its 2% inflation target rate would still be on track even if price increases run a bit hotter-than-expected over the next few months and it should be wary of waiting too long before it cuts rates.

Futures are back pricing close to 100bps of Fed rate cuts for 2024 and, helped by a retreat in crude oil prices, U.S. Treasury yields fell back.

The European Central Bank boss was less accommodative. Christine Lagarde said on Thursday the ECB must avoid cutting rates too early because that could prolong high inflation and even force the bank to tighten policy again.

Key diary items that may provide direction to U.S. markets later on Thursday:

* US weekly jobless claims, Jan retail sales and industrial production, Jan import/export prices, NAHB Feb housing market index, Philadelphia Fed's Feb business survey, NY Fed's Feb manufacturing survey; Canada Jan housing starts

* Chile central bank policy decision

* Federal Reserve Board Governor Christopher Waller and Atlanta Fed President Raphael Bostic speak; European Central Bank chief economist Philip Lane speaks; Bank of England policymakers Catherine Mann and Megan Greene both speak

* U.S. corp earnings: Consolidated Edison, Applied Materials, Alliant Energy, Deere, Southern, Ingersoll Rand, Zebra Tech, Roku, Doordash, Dropbox, CBRE, Mercer, Liberty Global, Cohu, Digital Realty, West Pharmaceuticals, Bio Rad Labs, Epam, Targa, Wendy's, Crocs, Genuine Parts, Laboratory Corp of America

* U.S. Treasury sells 4-week bills

(By Mike Dolan, editing by Nick Macfie mike.dolan@thomsonreuters.com)

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