Global stocks struggle but tech shares lifted by AI
Global stock markets wobbled Thursday as the US debt standoff dragged on and Germany entered recession, but tech shares surged after US chip firm Nvidia reported bumper earnings thanks to the AI boom.
Analysts cited heightened worries about a possible US debt default after ratings agency Fitch placed the country's AAA-ranked credit on "rating watch negative" amid the stalled talks on raising the US debt ceiling.
The announcement raises the possibility of a first ratings downgrade since another ratings agency, S&P Global, did so during a similar standoff in 2011.
Analysts said that while there is still a broad expectation an agreement will ultimately be reached, investors were increasingly agitated and risk-averse.
Clifford Bennett, chief economist at ACY Securities, warned the stakes are high in the event of a default.
"Market shock and ramifications will be profound and extend outward over several years," Bennett said.
"US bond prices and bonds around the world will drop. The US dollar will be strong at first on safe-haven and ever higher yields long term. The equity market can simply drop like a stone."
On Thursday US President Joe Biden expressed confidence about the talks, saying "there will be no default" and that talks with House Speaker Kevin McCarthy had been "productive."
The Dow was in negative territory most of the day before finishing down a scant 0.1 percent, well above session lows.
In Europe, markets slid with the Frankfurt DAX shedding 0.3 percent, London's FTSE 100 dropping 0.7 percent and the Paris CAC 40 slipping 0.2 percent.
- German recession -
German data showed that Europe's biggest economy entered recession in the first quarter, contracting by 0.3 percent after shrinking by 0.5 percent in the last three months of 2022.
The European single currency recoiled to a two-month low at $1.0714 before clawing back ground.
"German sentiment took a hit this morning," Scope Markets analyst Joshua Mahoney told AFP, noting German's recession was led by declining household consumption and government spending.
"While many will see this contraction as a warning sign that Europe's largest economy will drag the region lower, the optimists will also look at these figures as a sign that higher rates are cooling consumption which will ultimately drive inflation lower."
Back in the United States, the tech-rich Nasdaq rocketed higher following a nearly 25 percent surge in Nvidia following a blowout earnings report.
The rally brought Nvidia close to a $1 trillion market value.
Analysts cited Nvidia's $11 billion revenue forecast in the current quarter as a driver of the rally. The market had projected only about $7.3 billion in revenues.
Nvidia specializes in graphics chips that have long been coveted by gamers but have become engines for the kind of complex computing processes involved in artificial intelligence.
Thursday's trading extended a pattern of tech share strength throughout 2023 "with a very compelling story about artificial intelligence and its potential as a growth driver," said Angelo Kourkafas of Edward Jones.
With Nvidia, "it is more than a story," Kourkafas said. "It is translating into actual spike in revenue and profits."
- Key figures around 2030 GMT -
New York - Dow: DOWN 0.1 percent at 32,764.65 (close)
New York - S&P 500: UP 0.9 percent at 4,151.28 (close)
New York - Nasdaq: UP 1.7 percent at 12,698.09 (close)
Frankfurt - DAX: DOWN 0.3 percent at 15,793.80 (close)
London - FTSE 100: DOWN 0.7 percent at 7,570.87 (close)
Paris - CAC 40: DOWN 0.3 percent at 7,229.27 (close)
EURO STOXX 50: UP 0.1 percent at 4,269.64 (close)
Tokyo - Nikkei 225: UP 0.4 percent at 30,801.13 (close)
Hong Kong - Hang Seng Index: DOWN 1.9 percent at 18,746.92 (close)
Shanghai - Composite: DOWN 0.1 percent at 3,201.26 (close)
Euro/dollar: DOWN at $1.0727 from $1.0750 on Wednesday
Pound/dollar: DOWN at $1.2321 from $1.2365
Dollar/yen: UP at 140.09 yen from 139.47 yen
Euro/pound: UP at 87.04 pence from 86.94 pence
West Texas Intermediate: DOWN 3.4 percent at $71.83 per barrel
Brent North Sea crude: DOWN 2.7 percent at $76.26 per barrel