New highs as Nvidia tops Apple, ECB and BoC easing

A look at the day ahead in U.S. and global markets from Mike Dolan

Wall Street's tech-led stock surge to new records has seen $3 trillion AI-champion Nvidia replace Apple as the world's 2nd most valuable company in a market infused with interest rate cut excitement across the G7.

With the European Central Bank set to follow the Bank of Canada on Thursday with its first interest rate cut of the cycle, four countries of the G7 economic bloc will be in easing mode - with two more coming down the pike later this year.

Balancing them all, currency markets are taking it on the chin - with the euro and Canadian dollar relatively serene on the foreign exchanges despite the moves.

That's mainly because Federal Reserve rate cut speculation is stirring again too. Having gone from pricing at least 6 cuts in 2024 at the start of the year to just one last week, Fed futures markets are now settling on two quarter-point reductions - starting in September before the election.

A sweep of U.S. labor market reports this week support the argument that the economy is cooling, with the nationwide payrolls update on Friday set to be the decider and with updates on weekly jobless claims and May layoffs due on Thursday.

But the report that really catalyzed the latest equity surge to new records was the ISM service sector survey for last month that both doused concerns about a stalling of the economy and encouraged hopes for ongoing disinflation.

Although sister surveys for manufacturing show sign of spluttering, the service sector bounced back sharply in May, with its 'prices paid' component easing and employment reading still in contraction.

Something for everyone perhaps - certainly enough to catapult the S&P500 and Nasdaq to new all-time highs in its best day for over a month and drag 10-year Treasury yields to their lowest since April 1.

The VIX 'fear index' is subdued below 13 and S&P futures held the gains ahead of Thursday's bell.

The scores going into the half-year point are 2024 gains to date of over 12% for the S&P500, more than 14% for the Nasdaq and 4.5% for the equal-weighted S&P.

All that shows is that tech and its relentless artificial intelligence theme are dominating once again.

Bagging a $3 trillion market cap price-tag for the first time that leaves it second only to Microsoft following a 147% stock surge this year, Nvidia hit new highs and pulled all the AI complex of firms up with it.

Part of the latest scramble is because Nvidia is preparing to split its stock ten-for-one, effective on Friday, and those holding stock at the market close today will qualify for nine additional shares in the chip group.

In a possible shot across the bows, however, the New York Times reported that the U.S. Justice Department and the Federal Trade Commission have reached a deal that allows them to proceed with antitrust investigations into the dominant roles that Microsoft, OpenAI and Nvidia play in the AI industry.

Other earnings-related surges included gains of more than 10% on Wednesday for cybersecurity firm Crowdstrike and Hewlett Packard Enterprise, with the latter flagging strong demand for its AI servers.

But the tech fizz wasn't just on Wall Street. Shares in Dutch chip equipment giant ASML also climbed after reports it was nearing an agreement with Taiwan's TSMC on providing it with its most advanced machines later this year.

Aided by ECB rate cut optimism, European stocks gained almost 1% on Thursday - with its tech sector up 2% to its highest since December 2000 and German software leader SAP up 4.5%.

In a well-flagged move, the ECB is expected to cut borrowing costs by 25 basis points from 4% and President Christine Lagarde's remarks on the trajectory from here will now be in focus. Money markets are pricing in 64 bps of cuts this year - suggesting possibly two more after today.

With European Parliament elections kicking off in the background, European government bond yields were steady ahead of the ECB decision.

Stocks were higher across Asia too, with Taiwan outperforming with gains of almost 2% on the tech buzz and mainland China underperforming yet again in the red.

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

* European Central Bank policy decision, press briefing

* US May Challenger layoffs data, weekly jobless claims, April international trade balance; Canada April trade

* US Treasury Secretary Janet Yellen gives keynote remarks at Financial Stability Oversight Council in Washington

* US Treasury sells 4-week bills

* US corporate earnings: JM Smucker

* European Parliament elections kick off

(By Mike Dolan, editing by Christina Fincher, [email protected])