LONDON: Stock markets mostly rose Wednesday as traders battled to maintain momentum in this week’s rally despite worries about an extended period of elevated interest rates.
Investors are focusing on second-quarter results from Nvidia, whose processors have become a hot commodity as tech firms pile into developing artificial intelligence (AI) applications.
European markets were higher in midday trading despite data showing Britain’s economic activity contracting for the first time in six months while the downturn in the eurozone deepened. The data led to a drop in bond yields, an indication of borrowing costs.
Asian markets shrugged off a mostly-lower close on Wall Street on ratings downgrades for US banks as higher interest rates weigh on lenders.
Sentiment has taken a hit in recent weeks owing to a spike in US Treasury yields to around 15-year highs, fuelled by expectations that a strong economy will force the Federal Reserve to stick to its campaign of monetary tightening.
That has forced investors to push back their expectations of when borrowing costs will eventually come down – just a few months ago, they were betting on a cut by the end of the year.
All eyes are on a planned speech Friday by Fed chief Jerome Powell, with dealers hoping for some clarity on its plans to keep inflation on a downward path and confirmation of the central bank’s two percent target.
Forecasts are for a reiteration of his previous remarks that the goal is taming prices, even with rates already at 22-year highs.
“It’s not the height of rates that matters as much as how long they stay high,” said Tom Essaye, founder and president of Sevens Report Research.
“If we see Powell hint at higher for longer on Friday, we will need to brace for more equity market volatility.”
Nvidia
Investors are also awaiting earnings from Nvidia after Wall Street closes.
Investors want to see if the surge in demand for the company’s processors used in developing AI applications has continued and whether second quarter sales meet the $11bn estimate.
“Anything less than absolutely fantastic could trigger a sharp downside correction in Nvidia’s stock price which rallied 345 percent since the October dip,” said Swissquote Bank analyst Ipek Ozkardeskaya.
The firm’s shares have rocketed this year, helping boost many other tech firms, even as traders fret over the impact of higher borrowing costs on their bottom lines.
“The remarkable results it delivered in the previous quarter ignited a surge in the tech sector and generated optimism around artificial intelligence prospects, consequently driving the impressive performance of the S&P 500 throughout this year,” said SPI Asset Management’s Stephen Innes.
Tech companies are very susceptible to elevated borrowing rates owing to their use of debt to fuel growth, but the potential for AI to remake the market landscape has led investors to pile in nevertheless.
“Nvidia’s performance is seen by many as a potential bellwether for the IT sector and markets in general,” said National Australia Bank’s Rodrigo Catril
Key figures around 1030 GMT
London - FTSE 100: UP 1.0 percent at 7,341.30 points
Frankfurt - DAX: UP 0.4 percent at 15,772.95
Paris - CAC 40: UP 0.4 percent at 7,267.03
EURO STOXX 50: UP 0.4 percent at 4,277.57
New York - Dow: DOWN 0.5 percent at 34,288.83 (close)
Tokyo - Nikkei 225: UP 0.5 percent at 32,010.26 (close)
Hong Kong - Hang Seng Index: UP 0.3 percent at 17,845.92 (close)
Shanghai - Composite: DOWN 1.3 percent at 3,078.40 (close)
Dollar/yen: DOWN at 145.52 from 145.85 yen on Tuesday
Euro/dollar: DOWN at $1.0809 from $1.0851
Pound/dollar: DOWN at $1.2638 from $1.2729
Euro/pound: UP at 85.53 pence from 85.16 pence
West Texas Intermediate: DOWN 1.2 percent at $78.68 per barrel
Brent North Sea crude: DOWN 1.2 percent at $83.06 per barrel
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