US stocks drop after Fed official warns more rate rises may be needed

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European equities and Wall Street futures rose on Thursday, as blowout revenues from chipmaker Nvidia fuelled investor enthusiasm for artificial intelligence stocks. 

Europe’s region-wide Stoxx Europe 600 pared some early morning gains but traded 0.3 per cent higher, while France’s Cac 40 added 0.4 per cent and Germany’s Dax gained 0.3 per cent. 

The Stoxx Europe 600 Technology index jumped 0.7 per cent, as the rally in tech stocks rippled across global stock markets following news that US chip company Nvidia’s reported revenues had more than doubled in the latest quarter, outstripping already high estimates on Wall Street.

Futures contracts tracking Wall Street’s tech-focused Nasdaq 100 rose 1.3 per cent, while those tracking the benchmark S&P 500 gained 0.6 per cent ahead of the New York opening. 

Optimism about artificial intelligence has driven much of the rally in megacap US tech stocks since the start of the year, helping Nvidia’s shares triple and making it the first chip business to have a $1tn market capitalisation.

The chipmaker gained 8.2 per cent in pre-market trading, while tech giants Apple and Microsoft also rose.

“This eagerly anticipated report was a lot more than just about Nvidia’s earnings,” said James Baxter, founder of Tideway Wealth. “It is being read as an insight into the impact of generative AI, where Nvidia technology leads the way, on the wider software and computing industry.”

Shares of Dutch chipmaker ASML gained 1.1 per cent, the Switzerland-based STMicroelectronics advanced 1.3 per cent and South Korea’s SK Hynix gained 4.2 per cent, as Nvidia results confirmed traders’ bets on growing demand for chips used in AI. 

In Asia, Hong Kong’s Hang Seng index rose 2.1 per cent, China’s CSI 300 added 0.7 per cent, Japan’s Topix increased 0.4 per cent and South Korea’s Kospi gained 1.3 per cent. 

Equities were already edging higher before Nvidia’s results boosted market sentiment, as purchasing managers’ index data from the US and Europe on Wednesday increased the chances that big central banks will soon stop raising interest rates. 

Jefferies’ chief Europe financial economist Mohit Kumar noted that the PMI surveys could foreshadow an upcoming deterioration of hard data, which had until now been particularly strong in the US.

“The PMI data supports our view that we should see the macro picture (and labour data) start to crack towards the end of the third quarter, early fourth quarter,” he said. 

Investors will be focused on the annual economic policy conference in Jackson Hole, Wyoming, where US Federal Reserve chair Jay Powell is on Friday expected to offer an indication of the central bank’s plans for interest rates.

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