European and Asian chip manufacturers experienced an upward trajectory in early trading, while bond yields took a dip following lackluster Purchasing Managers' Index (PMI) results.
Thursday witnessed European stocks mirroring Asia's positive movement, driven by Nvidia's remarkable revenue figures that ignited investor fervor for artificial intelligence-related stocks.
The broader Stoxx Europe 600 index made significant gains of 0.9 percent during the market's opening hours, propelled by a robust technology sector. Notably, France's Cac 40 recorded a growth of 0.8 percent, and Germany's Dax saw an impressive 1 percent climb.
An impressive surge of 1.8 percent was observed in the Stoxx Europe 600 Technology index. This surge in tech stocks resonated across global markets, just a day after Nvidia, the US-based chip giant, released financials showcasing a revenue surge of over 100 percent in the previous quarter. This performance even surpassed the heightened Wall Street estimates.
The rise of artificial intelligence-related optimism has been a significant driving force behind the rally in large-cap US tech stocks since the year's commencement. This wave of optimism propelled Nvidia's shares to triple, catapulting it to the remarkable status of being the first-ever chip company with a market capitalization exceeding $1 trillion. In after-hours trading, the company registered a noteworthy increase of 6.6 percent.
According to James Baxter, the founder of Tideway Wealth, Nvidia's report extended beyond a mere earnings announcement. Baxter stated, "This highly anticipated report is not only about Nvidia's financial performance but is also being interpreted as a glimpse into the broader impact of generative AI, an area where Nvidia's technology is pioneering, on the expansive software and computing sector."
Other significant players in the chip manufacturing domain also experienced positive movement. Dutch chip manufacturer ASML's shares surged by 1.6 percent, STMicroelectronics, headquartered in Switzerland, marked a 1.3 percent increase, and South Korea's SK Hynix recorded an impressive gain of 4.2 percent. These moves were directly influenced by Nvidia's results, confirming traders' anticipations of an escalating demand for chips employed in generative AI systems.
On the Asian front, the Hang Seng index in Hong Kong surged by 2 percent, China's CSI 300 added 0.7 percent, Japan's Topix saw a 0.4 percent increase, and South Korea's Kospi exhibited a notable gain of 1.3 percent.
Anticipations were high as futures contracts tracking the tech-focused Nasdaq 100 on Wall Street showcased an ascent of 1.2 percent. Meanwhile, those tracking the benchmark S&P 500 displayed a gain of 0.6 percent, ahead of the opening bell in New York.
The surge in equities was not solely attributable to Nvidia's results; prior to their release, market sentiment had already started to improve. This was partly due to the Purchasing Managers' Index (PMI) data released from both the US and Europe the previous day. This data suggested an increased likelihood of major central banks curbing their interest rate hikes.
Mohit Kumar, the Chief European Financial Economist at Jefferies, pointed out that the PMI surveys could serve as a precursor to an imminent decline in concrete economic data, which had, up until this point, exhibited robustness in the United States. Kumar commented, "The PMI data aligns with our perspective that as we move towards the latter part of the third quarter and early fourth quarter, we may witness a gradual deterioration in the macroeconomic landscape, including labor data."
As a consequence of this sentiment, yields on two-year German Bunds, which are particularly sensitive to rate expectations, underwent a marginal reduction of 0.03 percentage points, settling at 2.94 percent. Concurrently, yields on 10-year Bunds, which serve as a regional benchmark, dropped by 0.05 percentage points to 2.47 percent. It's important to note that bond yields tend to decrease as bond prices rise.
Market participants' attention is now directed towards the annual economic policy conference taking place in Jackson Hole, Wyoming. There, Jay Powell, the Chair of the US Federal Reserve, is slated to provide insights on the central bank's future rate-related plans during his speech scheduled for Friday.
