Marketmind: Blue chips cheered up

A look at the day ahead in U.S. and global markets from Mike Dolan

For markets increasingly wary of the inflation and interest rate implications of re-accelerating world growth, the positive of a new burst of economic confidence in the tech sector adds some cheer at least.

The new year craze in artificial intelligence and chatbots seems to have electrified chip designer Nvidia, whose stock surged more than 8% before the bell after it forecast first-quarter revenue above Wall St estimates late Wednesday.

Its CEO Jensen Huang said use of its chips to power AI had “gone through the roof in the last 60 days.”

The world’s largest supplier of chips used in data centers for training AI has become a key hardware supplier for large tech companies such as Microsoft Corp that are building services like chat-powered search engines.

Chip stocks rose around the world on Thursday in the slipstream of Nvidia’s earnings report. S&P500 stock futures jumped about 0.5% and back above 4,000 points ahead of the open.

If the AI boom is one vignette in a world economy that appears to be skirting widely-forecast recession and regenerating some momentum, then the interest rate implications are considerable – not just in how high they go, but how long they stay up there.

The Federal Reserve at least seems keen on the higher-for-longer message that’s shaken world stock and bond markets this week.

While most Fed policymakers rallied behind a decision to further slow the pace of interest rate hikes at its last policy meeting – suggesting some still saw another half-point rate rise as warranted – minutes from the meeting showed they all saw curbing unacceptably high inflation as the “key factor”.

Bond yields rose following the release of the minutes and the U.S. dollar also advanced.

And as the minutes pre-date red-hot jobs and retail data for January, the message from Fed officials is probably even sterner now. New York Federal Reserve Bank President John Williams on Wednesday said the Fed is “absolutely” committed to bringing inflation back down to its 2% target over the next few years, by bringing demand down in line with constrained supply.

The signals from other central banks were similar. Bank of England interest rate-setter Catherine Mann said on Thursday that it was too soon to sound the all clear on inflation and the BoE should continue to raise borrowing costs.

Investors seem to be taking all that on board. A Reuters poll of equity analysts showed global stock markets are expected to correct in the next three months.

The Feb. 10-22 poll of more than 150 strategists, analysts and fund mangers covering 17 global stock indices, found that 56% were expecting their local market to fall in the next three months. A total of 48 out of 86 respondents said the chances of a correction were either high or very high.

But well chosen recovery stocks continue to do well. British engineering firm Rolls-Royce surged 18.1% on Thursday after the company’s CEO forecast more profit growth in 2023 after last year’s beat. A key factor was optimism around civil aerospace, the firm’s biggest division, as travel recovers from the pandemic.

Key developments that may provide direction to U.S. markets later on Thursday:

* US Q4 GDP revision and corporate profits estimate; weekly jobless claims; Kansas City Fed Feb business index; Chicago Fed Jan business index

* San Francisco Federal Reserve President Mary Daly, Atlanta Fed President Raphael Bostic speak; Bank of Spain Governor Pablo Hernandez de Cos speaks

* G20 finance ministers and central bankers meet in Bengaluru in southern India; Japan chairs separate G7 finance chiefs meeting

* U.S. Treasury sells 7-year notes

* U.S. corp earnings: Intuit, Edison, Booking, Moderna, Alliant Energy, Autodesk, Teleflex, Newmont, Warner Bros Discovery, PG&E, Domino’s, American Tower, American Electric Power, Keurig Dr Pepper, CBRE, Evergy etc

GRAPHICS:U.S. natural gas prices drop lowest since Sept. 2020 https://www.reuters.com/graphics/USA-NATGAS/zjvqjykmxpx/chart.png

US mortgage demand growth https://www.reuters.com/graphics/USA-STOCKS/zdvxdxobdvx/mba.png

2022 was worst year for chip stocks since 2008 crisis https://www.reuters.com/graphics/TEXASINSTRUMENT-RESULTS/jnvwywdxqvw/chart.png

Banking on value https://www.reuters.com/graphics/GLOBAL-MARKETS/znpnbxewzpl/chart.png

(By Mike Dolan, editing by Christina Fincher mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)