Stocks slip on inflation jitters, offsetting Nvidia hopes

[May 22, 2024]  By Tom Wilson and Wayne Cole

LONDON/SYDNEY (Reuters) -Share markets fell on Wednesday as stronger-than-expected inflation in Britain offset investor hopes that AI-heavyweight Nvidia could meet sky-high expectations, with the market also waiting for possible clues on when the U.S. Federal Reserve will begin to bring down interest rates.

European stocks dipped 0.3% in early trading, after earlier being poised for slim gains. Britain's FTSE 100 led losses among regional markets with an 0.6% drop.

Inflation in Britain fell by less than expected in April and a key core measure barely dropped, sparking a jump in the pound and in British government bond yields, as well as prompting investors to cut their bets on a Bank of England interest rate cut in June.

The data underscored jitters over whether central banks would move as quickly as markets hope to reduce interest rates.

Still, investors awaited an earnings report from U.S. artificial intelligence-heavyweight Nvidia, which is set to report after the market close.

Nvidia's earnings are set to provide the latest test for a U.S. stock market rally that has taken indexes to record highs this year, with the firm's influence on broader markets growing.

With Nvidia’s chips the gold standard in AI, its results are widely seen as a barometer for the burgeoning AI industry, whose evolution has stoked investor enthusiasm and helped drive the bull run in U.S. stocks.

Turbulence could follow, with options priced for a swing of 8.7% in either direction, worth $200 billion in market value.

"This is a pivotal event," Deutsche Bank analysts wrote. "It might seem strange that markets are hanging on the results of a single company, but over recent quarters, the release has become one of the most important events on the macro calendar."

S&P 500 futures and Nasdaq futures were flat.

The MSCI world equity index, which tracks shares in 47 countries, was also flat.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan firmed 0.3%, having already climbed for four straight weeks to reach a two-year top.

Passersby walk in front of an electric screen displaying Japan's Nikkei share average outside a brokerage in Tokyo, Japan March 21, 2024. REUTERS/Issei Kato/File Photo

CENTRAL BANK WATCH

The dollar edged lower ahead of minutes of the U.S. Federal Reserve's last meeting due later in the day.

The minutes should confirm the Fed's next rate move is still likely down, but policymakers first need more confidence that inflation has resumed its downtrend.

Fed fund futures imply about a 66% chance of a rate cut by September and have 43 basis points of easing priced in for this year.

After the UK inflation data, the pound climbed 0.3% at $1.2729, near two-month highs.

The euro was trading steady at $1.0851, just off its recent top of $1.0895.

Meanwhile, New Zealand's central bank offered a sobering assessment of its inflation problems, warning that rates would have to be higher for longer to bring them to heel in a shock to local markets.

That saw the kiwi dollar jump 0.9% to a one-month high of $0.6151 as bond yields spiked, while it surged to 17-year peaks on the relatively low-yielding yen.

Oil prices fell for a third straight session on the expectations the Fed may keep U.S. interest rates higher for longer due to sustained inflation, potentially impacting fuel use in the world's largest oil consumer.

Brent crude futures were down 1.3% $81.76 a barrel, while U.S. West Texas Intermediate crude (WTI) futures slipped 1.6% to $77.44.

(Reporting by Tom Wilson in London and Wayne Cole in Sydney; Editing by Subhranshu Sahu, Sam Holmes, William Maclean)

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