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Tesla, Nvidia Lead Nasdaq Surge After Fed Rate Cut

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The Nasdaq experienced one of its strongest rallies of 2024 on Thursday, surging 2.5% as investors flocked to tech stocks following the Federal Reserve’s first interest rate cut since 2020. Tesla and Nvidia led the charge, with Tesla shares climbing 7.4% and Nvidia jumping 4%, boosting the tech-heavy index to its fourth-largest gain this year. The biggest surge occurred on February 22, when the Nasdaq rose by 3%.

Tech stocks tend to benefit from lower interest rates due to reduced borrowing costs and more favorable investment conditions. The Fed’s half-point rate cut, along with indications of further reductions by the year’s end, created a bullish environment for tech stocks. The central bank’s “dot plot” suggests another 50 basis points of cuts before 2025, potentially reducing rates by 2 percentage points overall.

Thursday’s rally lifted the Nasdaq to 18,013.98, its highest point since mid-July and only 3.5% below the 2024 peak of 18,647.45, reached on July 10. Nvidia, a key player in the artificial intelligence (AI) revolution, closed at $117.87, up 4%. The company’s processors are fueling the rise of generative AI and tools like OpenAI’s ChatGPT. Nvidia’s stock is up around 138% this year, although still 13% below its all-time high from June.

Nvidia’s impressive growth is largely driven by major customers such as Microsoft, Meta, Alphabet, Amazon, Oracle, and OpenAI, which use its technology to develop large language models and manage substantial AI workloads. However, lower interest rates are expected to further bolster Nvidia’s stock performance.

Other chipmakers saw gains as well, with Advanced Micro Devices (AMD) up 5.7% and Broadcom rising 3.9%. While AMD is still trailing Nvidia in the AI race, its CEO, Lisa Su, emphasized that AI is a long-term game. Speaking with CNBC’s Jim Cramer, Su pointed out that the widespread adoption of AI is still in its early stages, and its impact will be seen in fields like education and healthcare over time. “We all use it, and we’re all learning,” she said.

Tesla was the standout among the tech megacap companies, posting a 7.4% gain on Thursday. Despite this jump, the electric vehicle maker has struggled in 2024, with its stock down nearly 2% for the year. However, Tesla is up 72% from its lowest point in April. Other tech giants, including Apple and Meta, also saw strong performances, both closing with nearly 4% gains.

 

BOJ Keeps Interest Rates Steady, Upgrades View on Consumption Signaling Confidence in Economic Recovery

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The Bank of Japan (BOJ) maintained its interest rates unchanged on Friday, while offering a more optimistic view on private consumption. This move reflects the central bank’s confidence that Japan’s economic recovery is progressing, potentially allowing for another interest rate hike in the near future. The decision, widely anticipated by market watchers, keeps short-term interest rates at 0.25%, marking the conclusion of the two-day meeting.

In its post-meeting statement, the BOJ noted that private consumption is “on a moderate increasing trend,” an upgraded assessment from previous reports that described consumption as resilient. This shift suggests that the central bank sees a stronger economic trajectory, despite headwinds from rising prices. The yen responded by paring losses, while the Nikkei average saw some gains shrink, as markets interpreted the central bank’s positive outlook as a sign of a possible rate hike soon.

Analysts believe this upgraded view reflects growing confidence that wage increases will support household spending, offsetting the impact of inflation. Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, stated, “If upcoming data further supports the BOJ’s optimistic outlook, we could see another rate hike as early as December.”

Japan has been dealing with accelerated inflation, with core consumer prices rising 2.8% in August, marking the fourth consecutive month of increases. This sustained inflation, alongside an annualized GDP growth of 2.9% in the second quarter and rising real wages, has fueled expectations of further interest rate hikes. The next opportunity for the BOJ to reassess its projections will come during its October 30-31 meeting, where the board will review its quarterly forecasts.

The BOJ’s decision to maintain its current rate stands in contrast to other major central banks, such as the U.S. Federal Reserve, which has recently shifted toward reducing borrowing costs. Governor Kazuo Ueda has maintained a hawkish stance, indicating that the BOJ is prepared to raise rates again if inflation continues to meet the bank’s 2% target.

Despite Japan’s domestic economic strength, external challenges loom, including weaker demand from China and slower growth in the U.S. Moreover, recent volatility in the yen and stock market fluctuations are key concerns for BOJ policymakers. However, the central bank has reiterated its readiness to implement further rate hikes, with some members advocating for a gradual increase in short-term rates to around 1% over time.

 

UK Inflation Holds Steady in August, Meeting Expectations

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Inflation in the U.K. remained stable in August, according to data released by the Office for National Statistics (ONS) on Wednesday, aligning with predictions from analysts. The headline consumer price index (CPI) remained at 2.2%, the same as July’s figure and in line with forecasts from a Reuters poll. This steady reading follows 2% CPI rates in both May and June, matching the Bank of England’s (BoE) target.

Following the news, the British pound rose slightly by 0.18%, trading at $1.3183 early Wednesday morning.

Services Inflation Rises:
One area of particular interest to the BoE is services inflation, which increased from 5.2% in July to 5.6% in August. The rise in this category is closely watched as it reflects domestic price pressures. Core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, also rose, hitting 3.6%, up from 3.3% in July.

According to the ONS, the largest upward pressure on prices came from higher airfares, which increased significantly compared to last year. However, motor fuel prices, along with hotel and restaurant costs, saw notable declines.

Monetary Policy Outlook:
The BoE is scheduled to meet on Thursday for its next monetary policy decision. While there were earlier bets of a second consecutive 25 basis point rate cut, these predictions have since been revised downward, with traders now placing the probability at 28%.

Richard Carter, head of fixed interest research at Quilter Cheviot, noted that while recent economic data pointed to stagnation in the U.K.’s output and a slowdown in wage growth, the stickiness of core inflation complicates the BoE’s decision-making process. Carter suggested that the BoE might adopt a more cautious approach compared to the U.S. Federal Reserve, which has maintained a more aggressive stance.

Ruth Gregory, deputy chief U.K. economist at Capital Economics, shared similar concerns about the rise in services inflation, predicting that upward pressure on prices could persist, especially with potential increases in utility costs on the horizon. Gregory expects the BoE to hold off on further rate cuts until November, with additional cuts likely to be spaced out until mid-2025.

Economic Planning and Inflation Management:
Ahead of the U.K.’s Autumn Statement, set for October 30, the new Labour government will present its budget plans. Chief Secretary to the Treasury, Darren Jones, acknowledged that while inflation is becoming more manageable, substantial efforts are still needed to address deeper economic challenges.