NVIDIA's AI Surge and Fed Caution Shape Global Sentiment

Global markets experienced a shift as the US dollar extended its decline, bringing the dollar index closer to the 200-day moving average support at approximately 103.70. The key catalysts for market movement included the release of the Federal Reserve's January FOMC meeting minutes and Nvidia's robust earnings report. 

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 Source: Finlogix Charts Nvidia, a major player in artificial intelligence, surpassed revenue expectations, reaching around USD 24 billion for the current quarter. This exceeded the Bloomberg consensus forecast of USD 21.9 billion, reinforcing investor confidence in the AI sector. Nvidia's CEO, Jensen Huang, emphasized the initiation of a significant investment cycle in generative AI, projecting a doubling of the global data centre installed base over the next five years, presenting a market opportunity in the hundreds of billions annually. As a result, Nvidia's stock price has already surged by over a third this year. 

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 Source: Finlogix Charts The optimistic investor sentiment wasn't confined to the United States. In Japan, the Nikkei 225 index closed above its previous record high from January 1990, underlining the global improvement in risk appetite. High beta currencies, including AUD, NZD, CAD, NOK, and SEK, strengthened against the US dollar, reflecting the positive sentiment among investors.

Another noteworthy event was the release of the FOMC minutes, indicating the Federal Reserve's cautious approach to early rate cuts. Officials expressed the need for more confirmation that slower inflation is sustainable before considering a change in policy. The minutes revealed that "most" Fed officials acknowledged the risks associated with hasty policy easing, emphasizing the importance of carefully assessing incoming data. While a couple of officials highlighted downside risks of maintaining a tight policy for too long, the overall tone aligns with the current market expectation of a rate cut in June, with only around 8bps of cuts priced in.

Despite the initial hawkish repricing of the outlook for Fed policy and other major central banks earlier in the year, it has not derailed the ongoing rebound in global equity markets. The delicate balance between economic indicators and central bank policy signals continues to shape market dynamics, with investors navigating through evolving landscapes.

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