Ebullience Around NVIDIA Sends Stocks Higher

• Last week, the Nasdaq 100 climbed by 1.4%, the DJIA saw a 1.3%increase and the S&P 500 rose by 1.7%. NVIDIA, the chipmaker, experienced a significant surge in market capitalization, with a remarkable increase of USD 277 billion, following the announcement of robust quarterly revenue and earnings. Simultaneously, the US Federal Reserve expects a rise in inflation in January due to the tight job market and the overall strength of the economy in the fourth quarter.
• The STOXX Europe 600 Index closed with a 1.2% increase. Investors reduced their expectations for the number of interest rate cuts this year, leading to an increase in European government bond yields. Furthermore, the Eurozone composite PMI for output is expected to climb from 47.9 in January to 48.9 in February, suggesting signs of potential stabilization in the Eurozone economy.
• The CSI300 Index saw a climb of 3.7%. In an effort to ensure ample liquidity in the banking system, the People's Bank of China (PBOC) has injected RMB 500 billion into the banking system through the medium-term lending facility. Additionally, the PBOC has reduced the five-year loan prime rate by 25 basis points to 3.95%, while keeping the one-year lending rate unchanged.

Chart of the Week

Narrowed Spreads Offset By Higher Base Rates

Credit spreads have recently contracted, indicating a reduction in the yield difference between riskier and safer fixed income assets. However, the year-to-date performance of investment-grade US corporate debt remains in negative territory at -1.8%, largely attributed to the upward movement in base rates. This negative trend contrasts sharply with the equity market, exemplified by the S&P 500 reaching all-time highs.

Notably, the bond market has been grappling with a prolonged drawdown since 2021, marking the longest and sharpest decline on record. Despite a credit spread below the historical average, there is a prevailing optimism that the carry, which is the return derived from earning income on an investment, will become more prominent in coming months, reversing the trend of fixed income returns to achieve positivity once more.

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