Written by Amanda Cooper
LONDON (Reuters) – Global stocks hit record highs on Wednesday, driven by a rally in technology stocks that made artificial intelligence chipmaker Nvidia (NASDAQ:) the most valuable company in the world, while the dollar stumbled as weak U.S. retail sales data showed that they may decline. Interest rates this year.
The MSCI World Index rose 0.15% to 805.12, after trading at an all-time high of 805.43.
A rise in US technology stocks on Tuesday allowed Nvidia to beat Microsoft (NASDAQ:), boosting shares of chipmakers in Asia overnight.
US stock index futures also rose, with technology-heavy stocks rising 0.23% and those rising 0.1%. In Europe, it decreased by 0.1%.
The pound rose after data earlier showed that British inflation returned to the Bank of England's 2% target in May for the first time since 2021.
The drop in inflation will be welcomed by both Prime Minister Rishi Sunak and the Bank of England – but it will likely come too late to change Sunak's fortunes in next month's election or to prompt the central bank to cut interest rates on Thursday.
“With UK inflation at 2% and US inflation – if we take personal consumption expenditures – at 2.7%, this is not devastating,” said Sami Char, an economist at Lombard Odier, referring to the reserve's preferred measure of inflation. Federal Reserve Personal Consumption Expenditures Index.
“It gives credence to the idea that the Bank of England will act in August at the latest, and then the Fed will follow in September,” he added.
The pound sterling, which has fallen about 0.2% so far this month, was trading at $1.2728, up 0.15%, while the euro rose 0.1% to $1.0747, but remained down 1% in June.
The single currency has been under pressure since French President Emmanuel Macron called for early elections last week after his ruling centrist party was defeated by the far right in the European Parliament elections.
US markets were closed on Wednesday, keeping overall market volatility subdued.
Hopes of lowering interest rates
Data on Tuesday showed that US retail sales barely rose in May and the previous month's numbers were revised downward significantly, suggesting that economic activity remained tepid in the second quarter.
These figures led to a slight increase in interest rate cut expectations for September, with traders anticipating a 67% chance of easing compared to a 61% chance the previous day, the CME FedWatch tool showed. Markets are pricing in cuts of 48 basis points this year.
“The Fed will need more data to support its case for lowering interest rates and investors should not exaggerate one or two data points,” said Vasu Menon, managing director of investment strategy at OCBC.
Last week, moderate inflation readings in the United States contrasted with a generally hawkish stance by Federal Reserve officials, who cut their previous median forecast of three quarter-point cuts this year to one.
“Interest rate cuts are a stronger story for 2025 but that's good because there is hope that it will happen in a bigger way over the next couple of years even if 2024 remains uncertain, and that will keep markets supported,” Menon said.
Fed officials are looking for more confirmation that inflation is cooling and for any warning signs from a still-strong labor market, as they cautiously move toward what most expect to be one or two rate cuts by the end of this year.
The index, which measures the performance of the US currency against six other currencies, settled at 105.19.
The Japanese yen drifted, leaving the dollar unchanged at 157.92, near a six-week high last week.
The yen has lost a third of its value against the dollar in the past four and a half years, mostly due to the wide gap between interest rates in Japan and those in the United States.
Minutes from the Bank of Japan's monetary policy meeting in April showed that policymakers discussed the impact a weak yen could have on prices, with some pointing to the possibility of raising interest rates sooner than expected if inflation exceeds limits.
In commodities, oil prices rose, with futures up 0.6% to $85.80 a barrel, while futures rose 0.48% to trade at $81.96.
