Morning bid: Nvidia nears, UK CPI lunge misses target
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[May 22, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
While the inflation and interest rate world continues to throw up
unpleasant surprises, it's hard to imagine much of a shift in major
indexes on Wednesday as Nvidia's earnings drum roll builds through the
session before a post-bell release.
While it's slightly alarming to have just one firm hold an entire stock
market in thrall, the sheer weight of Nvidia in indexes after another
near doubling of its share price this year underlines both its own
importance as well as that of artificial intelligence narrative at
large.
Nvidia's stock now has a weighting of over 5% in the S&P 500, accounting
for 6.5% of the Nasdaq 100 and 20% of the VanEck Semiconductor exchange
trade fund.
Standing away from the AI torchbearer, the macro backdrop has been less
benign over the past 24 hours - even if differing inflation pictures are
emerging internationally.
Canada's ongoing disinflation surprised positively on Tuesday and
spurred June interest rate cut hopes there. But plunging British
headline inflation missed forecasts and seemed to put the kibosh on
market speculation about a Bank of England move next month.
The Reserve Bank of New Zealand held its policy rates, meantime, and
gave some hawkish signals about potentially rising 'peak' rates.

With the Federal Reserve set the publish minutes of its latest policy
meeting later on Wednesday, the latest soundings from Fed officials this
week seem to throw cold water over any remaining talk of a U.S. rate cut
this summer.
On Tuesday, Fed governor Christopher Waller talked of "several more
months" of inflation monitoring before being able to act. Cleveland Fed
boss Loretta Mester referred to "a few more months".
Boston Fed chief Susan Collins reckoned: "It's going to take longer than
I had previously thought."
The upshot is that Fed futures now don't fully price the first
quarter-point move until the November 7 meeting - two days after the
U.S. election.
Despite a fresh slippage in oil prices, U.S. Treasury yields pushed back
higher early on Wednesday - with two-year yields at their highest in
over a week. Wednesday's upcoming 20-year bond auction probably hasn't
helped.
But the April UK inflation miss also colored the darker bond mood in
Europe.
Even though headline annual consumer price growth of 2.3% is almost a
full percentage point below the March reading, and now as close to the
BoE's 2% target as makes no difference, it was heavily influenced by big
drop in household energy tariffs and above the 2.1% forecast.
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A view of a Nvidia logo at their headquarters in Taipei, Taiwan May
31, 2023. REUTERS/Ann Wang/File Photo

Worriers pointed to much higher services inflation last month. And
even though one-off annual price changes there may be another
distortion, 'core' UK CPI inflation is still running at 3.9% - even
while annual producer output deflation is simultaneously as deep as
1.6%.
The messiness of the overall picture may make the BoE hesitate in
easing for a bit longer and money markets effectively wiped out the
chances of a June rate cut from 50-50 before the release.
In what looks like a possible overreaction, an August cut is now
even seen to be in the balance. UK government bond yields jumped to
a three-week high and sterling hit its highest in a month.
Elsewhere in Europe, markets shivered a bit on concerns about an
escalating tit-for-tat trade war between China and other western
economies.
European automakers fell 1.9% to a more-than-three-month low, with
shares of Mercedes-Benz, BMW and Volkswagen falling.
China should raise its import tariffs on large gasoline-powered cars
to 25%, a government-affiliated auto research body expert told
China's Global Times newspaper as the country faces sharply higher
U.S. auto import duties and possibly additional duties to enter the
EU.
Back on Wall St, stock futures were marginally in the red after
notching modest gains on Tuesday. The dollar was firmer. Global
stock markets were slightly weaker.
Key diary items that may provide direction to U.S. markets later on
Wednesday:
* US April existing home sales
* US corporate earnings: Nvidia, Target, Synopsys, Analog Devices,
TJX
* Federal Open Market Committee issues minutes from April 30-May 1
meeting; Chicago Fed President Austan Goolsbee speaks
* US Treasury sells 20-year bonds
(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com)
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