International News 22/02
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Global Exchanges: Dollar and Stocks Weaken as Interest Rate Cut is Expected
Optimism regarding central banks cutting interest rates has diminished, affecting global market sentiment. Consequently, the dollar has weakened, and global stock indices have contracted. The STOXX 600 index and Japan's Nikkei are both approximately 1% below their record highs, while the rally on Wall Street has stalled, despite Walmart's strong performance. The recent US inflation data, which was hotter than expected, has delayed the Federal Reserve's easing cycle, with a rate cut now anticipated in June. Economists surveyed by Reuters also noted the possibility of a further delay in the first interest rate cut. The structural basis for hopes of further deflation appears to be incorrect, as there is not much slack in the US economy, according to Phillip Colmar of MRB Partners. The dollar has fallen 0.24% against a basket of currencies, and MSCI's global stock index has lost 0.35%. Despite the European Central Bank's data indicating a slowdown in annual growth of negotiated wages across the Eurozone, the STOXX 600 index has fallen by 0.10%.
U.S. Stocks Decline Before Nvidia Report; Walmart Leads Dow Jones
The US stock market closed lower on Tuesday, primarily due to a drop in the Nasdaq, as chipmaker Nvidia's shares stumbled ahead of their earnings report. This caused the broader Philadelphia semiconductor index to fall, with other chip stocks following suit. Investors are concerned about whether Nvidia's quarterly results, expected to be released on Wednesday, will justify its high valuation and continue to drive the buying frenzy in AI-related stocks. Nvidia's success in AI investments has made it the third most valuable US company and the most traded stock on Wall Street, surpassing Tesla. Traders and asset managers are expected to lock in profits and unwind some of their positions in anticipation of the earnings report. While other chip stocks were affected, shares of Walmart saw gains, limiting losses in the Dow Jones Industrial Average.
The United States Returns Subsidies to Local Semiconductor Manufacturers
The United States is granting a $1.5 billion subsidy to GlobalFoundries, the world's third-largest chip maker, as part of the $39 billion approved by Congress to boost domestic chip production. The funding will be used to build a new semiconductor production facility in Malta, New York, and to expand the company's operations in New York and Vermont. GlobalFoundries will receive a $1.6 billion loan in addition to the subsidy, resulting in a total investment of $12.5 billion. The company produces chips for satellite and space communications, the defense industry, and vehicle safety features. CEO Thomas Caulfield emphasized the need to increase demand for US-made chips and develop a skilled semiconductor workforce. The expansion of the facility in Malta will help ensure a stable supply of chips for the company.