Stocks Rally on Tech Optimism, Fed Rate Outlook:
Lackluster US, Europe economic data opens door for rate pause
Nvidia’s bullish sales outlook prompts after-hours stock rally
European and US equity futures gained along with Asian stocks in a broad-based rally helped by rising tech shares and signs the Federal Reserve is nearing the end of its tightening campaign.
Futures contracts for the Euro Stoxx 50 and S&P 500 both advanced around 0.8%, while those for the Nasdaq 100 climbed more than 1%, adding to Wednesday gains.
Better-than-expected earnings from Nvidia Corp. stoked the upswing. The chip-maker forecast quarterly sales to reach $16 billion, eclipsing the $12.5 billion anticipated by analysts. The company’s Asia-based suppliers also rallied, with the tech-reliant South Korean won strengthened against all its Asian peers.
Equity benchmarks in Japan, Australia and South Korea all advanced, while shares in Hong Kong headed for their best day in a month, led by tech stocks.
Treasuries were little changed in Asia after jumping Wednesday. The US 10-year yield had fallen 13 basis points in New York, while policy-sensitive two-year yields declined eight basis points to below 5%.
The stock rally was helped along by US flash purchasing managers index data for August that came in softer than expected, echoing underwhelming euro-zone data.
“In terms of the economic data, it look like bad news is good news for the market,” Grace Tam, chief investment advisor for Hong Kong at BNP Paribas Wealth Management, said on Bloomberg Television. “In terms of PMIs in the US and Europe, it’s good news for the market because they are now expecting no more rate hikes in the future. This is a tail wind for AI and tech stocks.”
The cost of insurance against default for Asia’s investment grade dollar bonds fell, with one gauge of credit default swaps heading for its steepest decline in nine months.
Pockets of concern remain. China’s $2.9 trillion trust industry is showing signs of strain, adding further pressure on the economy, while insiders are also worried that efforts to improve the health of local government financing vehicles may not play out as hoped. The People’s Bank of China provided further support for the yuan, setting the daily reference rating stronger than estimates.
Bank of Korea held its benchmark interest rate on hold as did policymakers in Sri Lanka. Traders will also be monitoring Bank Indonesia’s rate decision later Thursday.
The drop in Treasury yields weighed on the dollar and came before Fed Chair Jerome Powell’s speech on Friday at the Jackson Hole symposium.
Powell is expected to outline the final steps in the central bank’s inflation-fighting campaign following weeks of pressure on stocks and government bonds, which has increased borrowing costs for businesses and households.
“The recent surge in bond yields has pushed up mortgage and corporate borrowing rates, contributed to the fall in stock prices, and generated upward pressures on the dollar,” said Krishna Guha, vice chairman at Evercore ISI. “The Fed will have to consider the tightening in financial conditions when setting rates in coming months, including the decision on whether to hike in September.”
US mortgage applications for home purchases tumbled to an almost three-decade low. A US government report also showed job growth in the year through March will probably be revised down by around 300,000.
Elsewhere in corporate news, Esmark Inc. said it won’t make a takeover offer for US Steel Corp. and WeWork Inc. is rounding up advisers for help with a restructuring as it struggles with a heavy debt load, according to people with knowledge of the matter.
In commodities, oil fell for a fourth day as an improving supply outlook hit a market grappling with sluggish demand in the biggest importers. Gold edged higher.