Marketmind: AI 'tipping point' sends Nvidia, Nasdaq, Nikkei north

[February 22, 2024]  A look at the day ahead in U.S. and global markets from Mike Dolan

Chip giant Nvidia's uncanny ability to beat even a sky-high bar of earnings expectations and its claim of a "tipping point" in generative artificial intelligence has catapulted stocks in Japan, Europe to record highs and Wall St looks set to follow.

Shares in the AI darling soared 12% premarket after it forecast a threefold surge in quarterly revenue that handily beat estimates and sent chip stocks surging around the planet.

Nvidia said it expects an eye-popping first-quarter revenue growth of 233%, way ahead of even Wall Street's lofty expectations of 208% growth, and after it raked in some $22 billion of revenue in the quarter just passed. After more than trebling over the past year, the latest stock surge is set to load back another $130 billion in market value onto the $1.7 trillion behemoth and likely reclaim its ranking as America's third most valuable company later on Thursday.

"Accelerated computing and generative AI have hit the tipping point," Nvidia chief executive Jensen Huang was reported as saying after results were released after the bell on Wednesday and he added the firm can barely keep up with demand.

Unsurprisingly, the boom has lifted Nasdaq futures 2% before today's open and after a dour session on Wednesday S&P500 are up over 1% too.

But records went off like a Christmas tree around the world through the night as the AI chip frenzy was enough to send Japan's Nikkei leaping to new all-time highs at last - finally surpassing previous peaks set at the height of Japan's property bubble in 1990.

Even Europe's STOXX 600 soared almost 1% to hit a new record - beating previous highs set in January 2022 - with its regional chipmakers leading the charge too. Germany's DAX, France's and Amsterdam's all scaled new peaks.

And China's tentative stock market recovery continued for a fourth consecutive session post-holidays despite ongoing angst about the state of the economy there.

The AI buzz around the world and rocketing stock values stand in contrast to the darker mood in interest rate markets - where the Federal Reserve and other central banks appear to be stalling on interest rate cuts in the first half of this year.

The bulk of Fed policymakers were concerned about the risks of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level, according to the minutes of the Fed's Jan. 30-31 meeting released late on Wednesday.

Even though the Fed minutes did indicate that discussions about a slowing of its balance sheet rundown would start as soon as next month, bond markets were under the cosh.

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

Hit also by poor demand at Wednesday's 20-year bond auction and year-on-year crude oil price gains at their highest since October, Treasury yields nudged higher on Thursday.

Full-year Fed rate cut expectations have now been scaled back to less than 90 basis points, with futures markets not fully pricing the first quarter-point cut until July.

Despite that, the dollar index fell back to the lowest level in almost three weeks - with the euro leading the way higher after surprisingly upbeat early February business activity readings for the euro zone.

The downturn in euro zone business activity eased this month as the dominant services sector broke a six-month streak of contraction, offsetting a deterioration in manufacturing, HCOB's composite S&P Global PMI survey showed.

The index rose to 48.9 this month from January's 47.9, ahead of expectations in a Reuters poll for 48.5. Even though that marked its ninth month below the 50 level separating growth from contraction, the services PMI jumped to 50.0, far exceeding forecasts.

U.S. equivalent survey readings and weekly jobless claims numbers are due out later alongside a packed diary of senior Fed speakers and another heavy corporate earnings schedule.

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

* U.S. flash Feb business surveys from S&P Global, weekly jobless claims, Jan existing home sales. Canada Dec retail sales

* Federal Reserve Vice Chair Philip Jefferson, Fed Board Governor Lisa Cook, Fed Board Governor Christopher Waller, Philadelphia Fed President Patrick Harker, Minneapolis Fed chief Neel Kashkari all speak

* U.S. corp earnings: Intuit, Booking, Coterra Energy, PG&E, Moderna, Edison, Insulet, Ameren, EOG, Live Nation Entertainment, VICI Properties, Copart, Pioneer Natural Resources, Newmont, Dominion Energy, LKQ, Quanta Services, Builders FirstSource, Iron Mountain, Teleflex, Pool, Keurig Dr Pepper, Entergy

* Informal European Union finance ministers meeting in Brussels

* U.S. Treasury auctions 30-year inflation-protected bonds, 4-week bills

(By Mike Dolan, [e-mail]; editing by David Evans)

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