Nvidia fuels worldwide stock frenzy, bond yields rise

By Herbert Lash and Marc Jones

NEW YORK/LONDON (Reuters) -Nvidia’s stunning AI-related outlook sparked a worldwide wave of record highs in equity markets on Thursday, including the first new peak for since 1989, but bond yields mostly rose as economic data kept immediate hopes of interest rate cuts at bay.

The benchmark on Wall Street and Europe’s pan-regional index also hit fresh record highs as Nvidia (NASDAQ:)’s shares jumped 15.2% and lifted artificial intelligence-related chip stocks around the world.

National bourses in Frankfurt and Paris also set fresh highs, while Chinese stocks overnight extended their winning streak to eight straight sessions.

Nvidia on Wednesday beat expectations for fourth-quarter revenue and forecast a roughly three-fold surge in first-quarter revenue on strong demand for its AI chips. Nvdia could add more than $200 billion in market capitalization if the day’s gains hold.

Artificial intelligence provides the means to boost productivity that economies have struggled to increase for two decades, said Thomas Hayes, chairman and managing member of Great Hill Capital LLC in New York.

“What Nvidia represents is the catalyst for the roaring ’20s in terms of productivity enhancement moving forward and as productivity increases, it keeps a lid on inflation,” Hayes said.

MSCI’s gauge of stocks across the globe gained 1.43%, while he pan-European STOXX 600 index closed up 0.91%.

On Wall Street, the rose 0.73%, the S&P 500 gained 1.72% and the added 2.46%.

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating job growth likely remains solid in February and will reduce the urgency for the Federal Reserve to start cutting interest rates.

The rebounded after earlier hitting a three-week low as investors awaited new data for insight into when the Fed is likely to begin cutting interest rates.

The dollar index rose 0.038%, with the euro down 0.04% to $1.0813.

The Nikkei has jumped nearly 17% already this year, with the S&P 500 and Nasdaq rallying about 5% each, driven in large part by the expectations for AI, with Nvidia’s chips at the center of the boom.

Thursday’s record-setting charge included Tokyo Electron jumping 6%, chip-testing equipment maker Advantest surging 7.5% and another chip-related share, Screen Holdings, rallying more than 10%.

“It has taken the Nikkei roughly 34 years to get to this record high but it is all being driven by strong earnings upgrades,” said Absolute Strategy’s global equities analyst Nick Nelson.

There was a big difference from the last time the Nikkei peaked during its bubble, Nelson said. When the Nikkei peaked in 1989, stocks were valued at almost four times what they are now, Nelson said.

Euro zone yields drifted to multi-month highs as money markets scaled back their bets on European Central Bank rate cuts to less than 100 bps this year after Fed minutes on Wednesday showed policymakers were concerned about moving too early.

The latest ECB minutes showed its rate-setters were sticking with patience while new PMI data showed the downturn in euro zone business activity eased in February.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 5.6 basis points at 4.709%.

The yield on was unchanged to 4.323% as longer-duration bonds were flat.

While the bulk of Fed policymakers said they were concerned about the risks of cutting too soon, according to its meeting minutes, there was still broad uncertainty about how long borrowing costs should remain at their current lofty level.

That reinforced the view among traders that any rate cut is not imminent, with market pricing suggesting one-in-three odds for a first reduction in May, according to CME Group’s (NASDAQ:) FedWatch Tool.

Oil prices steadied as a big rise in inventories offset the supportive impact of another attack on shipping near Yemen.

U.S. crude recently rose 0.82% to $78.55 per barrel and was at $83.54, up 0.61% on the day.