Business Maverick

Business Maverick

US equity futures jump on Nvidia, Asia stocks fall: markets wrap

US equity futures jump on Nvidia, Asia stocks fall: markets wrap
Nvidia headquarters in Santa Clara, California, U.S., on Tuesday, Feb. 23, 2021. Nvidia Corp. is expected to release earnings figures on February 24.

US equity futures rallied on a sharp rise in sales forecasts from chipmaker Nvidia Corp., which fueled gains for Asian tech shares without lifting broader stock benchmarks in the region. 

The Japanese market fluctuated while equities fell in South Korea, Australia and China. Declines for Hong Kong’s Hang Seng Index placed it on course for a third day of losses greater than 1% as global investors remained downbeat on Chinese assets.

Taiwanese stocks rose, bucking the trend in Asia as Taiwan Semiconductor Manufacturing Co. — which supplies Nvidia — climbed almost 3%. South Korean tech bellwethers Samsung Electronics Co. and SK Hynix Inc. advanced and in Tokyo equipment supplier Advantest Corp. surged 20% to an all-time high. 

Nvidia rallies in after-hours trading

The broader weakness in Asia reflected cross winds as traders contend with the risk of the US defaulting on its debt, the chances of another rate hike by the Federal Reserve, central bank meetings in Seoul and Jakarta, and signs of softness in the Chinese economy.

Gold fluctuated and the yen edged lower after both haven assets spiked higher when Fitch placed US ratings on watch negative. The yen was hovering just below 140 per dollar and at its weakest since November. 

The New Zealand dollar added to recent losses after the central bank indicated on Wednesday that its rate-hike cycle had peaked. The won was weaker after the Bank of Korea held rates steady on Thursday. The rupiah was also down ahead of a decision from the Bank Indonesia, which was also seen standing pat. 

Treasury yields were broadly higher across the curve, adding to their advance on Wednesday. Yields on the two-year and 10-year Treasury notes climbed to the highest level since mid-March, during the depths of the banking crisis, as investors digested news from Fitch, which said the decision reflected the partisan dispute over the debt ceiling. The ratings agency noted that it still expects a resolution to head off default. 

Nasdaq 100 futures rallied 1.4%, holding most of their early gains, even after the Fitch news. The rally followed a 0.5% drop in the underlying index on Wednesday amid concerns over the debt-ceiling impasse and uncertainty over the Fed’s next policy decision. Contracts for the S&P 500 jumped 0.4%.

AI impact

Nvidia shares rose by around 25% in after-hours trading following the chipmaker’s report that booming demand for artificial intelligence processors would fuel revenue growth. The action indicated a gain of around $200-billion to its market value.

“The company couldn’t have been more positive about what it’s seeing,” said Adam Crisafulli, analyst and founder of Vital Knowledge media. “In addition to the huge revenue tailwind hitting the company from AI, Nvidia’s gross margins have now largely recovered to prior peak levels.”

In addition to Nvidia and the debt talks, investors were weighing minutes from the Fed’s meeting in early May that showed policymakers leaning toward pausing interest-rate increases in June amid heightened uncertainty over the outlook. Yet the minutes also suggested they aren’t yet ready to call an end to their battle against stubborn inflation.

Other economic headwinds stemming from tighter credit conditions are also not yet reflected in market prices, according to Kim Strand, senior vice president, Franklin Templeton Investment Solutions.

“Our base case is still a recession,” Strand said in an interview on Bloomberg Television. “The rate hike cycle could be over but there is still a lot left in terms of macro economic uncertainty and how that ripples through the economy.” DM

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