May 22 2024: Share markets fell on Wednesday as stronger-than-expected inflation in Britain overshadowed investor optimism about Nvidia’s upcoming earnings report. European stocks dipped 0.3% in early trading, with Britain’s FTSE 100 leading regional losses with a 0.6% drop.
Inflation Concerns
In Britain, April inflation fell less than expected, with a key core measure barely dropping. This led to a jump in the pound and British government bond yields, and prompted investors to reduce their bets on a Bank of England rate cut in June. The persistent inflation underscored worries that central banks may not reduce interest rates as quickly as markets had hoped.
Nvidia’s Impact
Investors are closely watching Nvidia’s earnings report, due after the market close, as the company plays a pivotal role in the AI sector. Nvidia’s results are seen as a barometer for the AI industry, which has been a significant driver of the U.S. stock market rally this year. The firm’s influence on broader markets is substantial, with options pricing in an 8.7% swing in either direction, potentially affecting $200 billion in market value.
“This is a pivotal event,” Deutsche Bank analysts wrote. “It might seem strange that markets are hanging on the results of a single company, but over recent quarters, the release has become one of the most important events on the macro calendar.”
Market Reactions
S&P 500 futures and Nasdaq futures were flat. The MSCI world equity index, tracking shares in 47 countries, was also flat. MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.3%, having climbed for four straight weeks to reach a two-year high.
Central Bank Watch
The dollar edged lower ahead of the release of the U.S. Federal Reserve’s last meeting minutes. These minutes are expected to confirm that while the Fed’s next rate move might be down, policymakers need more confidence that inflation is on a downtrend. Fed fund futures imply about a 66% chance of a rate cut by September and have 43 basis points of easing priced in for this year.
After the UK inflation data, the pound climbed 0.3% to $1.2729, near two-month highs. The euro traded steady at $1.0851, just off its recent top of $1.0895.
New Zealand’s Inflation Challenges
New Zealand’s central bank offered a sobering assessment of its inflation issues, indicating that rates would need to stay higher for longer to control inflation. This statement led to a 0.9% jump in the kiwi dollar to a one-month high of $0.6151 and a surge to 17-year peaks against the yen.
Oil Prices
Oil prices fell for the third straight session amid expectations that the Fed may keep U.S. interest rates higher for longer due to sustained inflation, potentially impacting fuel use in the world’s largest oil consumer. Brent crude futures were down 1.3% to $81.76 a barrel, while U.S. West Texas Intermediate crude (WTI) futures slipped 1.6% to $77.44.
