FTSE 100 hits a record as Nvidia gets a new revenue stream

European stocks have erased weakness from Monday and are higher, as a risk on mood takes hold ahead of key event risk on Tuesday. The FTSE 100 has passed a key milestone and is above the 9,000 level for the first time, proving how resilient the UK index has been to economic uncertainty, tariff risks and a weaker dollar. US CPI will be released later this afternoon, along with a raft of US earnings reports from top tier banks, including JP Morgan, Citigroup and Wells Fargo.

Easing export restrictions gives Nvidia a boost

News that the US has relaxed restrictions on exports of Nvidia’s H20 chip to China, has boosted risk sentiment this morning. This is huge news for the company and could lead to a raft of earnings upgrades for the second half of this year. It may also benefit the US semiconductor space more broadly, as hopes rise that export restrictions to China get lifted for more than just Nvidia. Although China has been circumnavigating US export controls and accessing US chip technology through third countries, in the three months to April, Nvidia reported a $4.5bn charge to its earnings statement due to increased inventory caused by blocked sales to China. Thus, this news could make a material difference to revenues for Nvidia and other US semiconductor companies. Nvidia had announced that it was working on a specific chip for the China market to get around export restrictions, however, today’s development could make life much easier for the company and be an earlier boost to revenues.

China less likely to become a rival to US chip sector with export move

The H20 chip is not Nvidia’s most advanced chip, however, now that the US has eased export restrictions, it opens the door to future sales of even more advanced Nvidia technology. This is a boon for the entire chip sector in the US and Europe, since it removes an existential risk: that China would develop its own chips, which could be a major rival to US semiconductor companies.

Nvidia may cement its status as world’s most valuable company

Nvidia’s stock price is likely to get a boost from this news, after falling at the start of the week. The stock is higher by 20% so far this year, after staging an impressive recovery since April. It also became the world’s first company with a  $4 trillion valuation, and this news could see it maintain these gains, and could see its valuation get another boost as the risk of China developing its own chip and becoming a formidable rival to Nvidia may now be reduced.

ASML gets a boost from Nvidia news

This news is impacting the European market, as ASML is the top performing stock on the Eurostoxx 50 index, its share price is higher by more than 1.2% on Tuesday, which could be a sign of how the chip sector will perform when the US opens later today. US stock futures are higher today, and European markets are also in the green and the FTSE 100 has topped 9,000 for the first time, even though it is lagging other European indices on Tuesday.

FTSE 100 hits record even with pockets of weakness

The 0.8% decline in the oil price is hitting the share price of Shell, which is down 0.5% on Tuesday. The homebuilding sector is also one of the laggards on the FTSE 100 this morning after Barret Redrow’s trading update highlighted weakness in the London property market and continued red tape and planning regulations being a hindrance to growth. This is weighing heavily on Barrat Redrow, and its stock price is down more than 10% this morning, it is also weighing on Persimmon and The Berkely Group. Overall, this is another sign that the UK government’s plans to boost growth are taking longer to implement than first hoped.

Will Rachel Reeves give certainty on tax and growth measures at Mansion House?

While the focus for global markets will be on US CPI and banking earnings, UK investors may want to focus on Chancellor Rachel Reeves’ Mansion House speech this evening. If the chancellor wants to build economic confidence over the summer, then she should send a message that gives certainty on tax and find a way to stem the wealth flight from the UK. The City will also look for assurances that there will not be any taxes levied on the banking sector, which have been touted by some in the Labour party as a way to plug the UK’s fiscal black hole. Lloyds’ share price has had a strong run this year, and is higher by 40%, a sign that if banks are tapped for tax at this Budget, then it may weigh on the sector later this year.  

Overall, stocks are higher, the FTSE 100 is at a record, bonds are higher, and yields are lower, and the dollar and other safe haven currencies are broadly lower on Tuesday. Today is a good day for risky assets, but will US CPI derail the party?