By Amanda Cooper
LONDON (Reuters) – Global stocks hit record highs on Wednesday as tech shares surged, making AI chipmaker Nvidia (NASDAQ:) the world’s most valuable company, while the dollar stagnated after feeble U.S. retail sales data suggesting a decline in interest rates this year.
The MSCI All-World Index rose 0.15% to 805.12, hitting an all-time high of 805.43.
Tuesday’s pointed rise in American technology stocks allowed Nvidia to dethrone Microsoft (NASDAQ:), which overnight increased its shares in Asian chipmakers.
US stock index futures also rose, with technology-based futures up 0.23% and index futures up 0.1%. In Europe it fell by 0.1%.
The pound rose after earlier data showed UK inflation returned to the Bank of England’s 2% target in May for the first time since 2021.
The fall in inflation will be welcomed by both Prime Minister Rishi Sunak and the BoE, but it is likely to come too delayed to either reverse Sunak’s fortunes at next month’s election or prompt the central bank to cut interest rates on Thursday.
“With UK inflation at 2% and US inflation – if we take PCE into account – at 2.7%, it’s not too burdensome,” said Samy Chaar, an economist at Lombard Odier, referring to the Federal Reserve’s preferred a measure of inflation, i.e. the index of personal consumption expenditure.
“This gives credence to the idea that the Bank of England will take action no later than August, followed by the Fed in September,” he said.
Sterling, down about 0.2% this month, was last traded at $1.2728, up 0.15%, while the euro rose 0.1% to $1.0747, but it was still down 1% in June.
The single currency has been under pressure since French President Emmanuel Macron last week called early elections after his ruling centrist party was defeated by the far right in the European Parliament elections.
US markets were closed on Wednesday, which kept overall market volatility low.
HOPE FOR A RATE REDUCTION
Tuesday’s data showed that U.S. retail sales barely rose in May, and the previous month’s data was revised down significantly, suggesting that economic activity remained feeble in the second quarter.
The numbers led to a slight augment in expectations for rate cuts in September, with investors pricing in a 67% chance of rate cuts compared with a 61% chance a day earlier, the CME FedWatch tool showed. Markets are pricing in this year’s cuts by 48 basis points.
“(The) Fed will need more data to support its case for a rate cut, and investors should not go overboard on one or two data points,” said Vasu Menon, managing director of investment strategy at OCBC.
Last week’s gentle U.S. inflation readings contrasted with the generally hawkish stance of Fed officials, who lowered their previous median forecast of three-quarter-point rate cuts this year to one.
“Interest rate cuts are a stronger story for 2025, but that’s okay because the hope is that this will happen on a larger scale over the next two years, even if 2024 remains uncertain, and that will support markets,” he said Menon.
Fed officials are looking for further confirmation that inflation is falling and any warning signs from a still-strong labor market as they steer cautiously toward what most expect is an interest rate cut or two by the end of this year.
An index measuring the performance of the U.S. currency against six other currencies held steady at 105.19.
The Japanese yen drifted, leaving the dollar unchanged at 157.92, near last week’s highs.
The yen has lost a third of its value against the dollar over the past 4.5 years, largely due to the wide difference between interest rates in Japan and the United States.
Minutes from the Bank of Japan’s April policy meeting showed policymakers debating the impact a feeble yen might have on prices, with some noting a chance to raise interest rates sooner than expected if inflation exceeds the mark.
In commodities, crude oil prices rose, with futures rising 0.6% to $85.80 a barrel, while futures rose 0.48% to $81.96.
