Nvidia crosses US$3 trillion market cap, Nasdaq hits record high

Good morning. Here's what happened overnight and what you need to know today.

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1.

Tech stocks surge: The tech-dominated Nasdaq Composite hit a record high, up 1.96%, driven by gains in major tech companies including Nvidia, Meta Platforms, Hewlett Packard and other Magnificent Seven stocks. Nvidia's shares rose 5.16%, pushing its market value to USD3 trillion ($4.51 trillion) and joining Apple and Microsoft in crossing the threshold. Nvidia's stock has surged nearly 150% this year. This week, Nvidia, AMD and Intel, have all revealed new AI chips at the Computex tech conference in Taiwan. The S&P 500 and Dow industrials also saw gains, with lower treasury yields contributing to the market’s positive performance. Shares in Hewlett Packard Enterprise (HPE) reached a new record, jumping as much as 16% to USD20.43 after the company reported strong quarterly results and raised its annual guidance. HPE's earnings exceeded analyst expectations, driven by improved revenue from AI-oriented servers using Nvidia chips. The stock closed 10.7% higher at USD19.48 each. Semiconductor group ASML rose 8%, while Microsoft (1.9%), Alphabet (1.11%), Apple (0.78%), and Amazon (1.08%) also saw gains. (WSJ) (Bloomberg)

2.

Court clips SEC: A US appeals court overturned an SEC rule requiring private funds to provide investors with regular account statements, standardised fee information, conflict of interest disclosures and annual audits. The 5th Circuit Court of Appeals ruled that the SEC exceeded its authority in adopting the rule in August 2023, siding with six private equity and hedge fund groups that argued that the regulation would disrupt their operations. The rule aimed to enhance transparency, fairness and accountability by requiring fund managers to issue quarterly performance and fee reports and by eliminating preferential treatment for some investors. However, the nearly $27 trillion industry argued the rule was unnecessary for "highly sophisticated" investors and would cost nearly $500 million annually in compliance. Concerns over potential financial stability risks in the rapidly growing private market have led SEC Chair Gary Gensler to prioritise transparency in the private-funds market. The SEC is reviewing the court's decision. Industry groups, including the American Investment Council and the Managed Funds Association, celebrated the decision as a victory. But critics argue that the industry's lack of transparency harms ordinary investors, especially those with indirect exposure through pension and retirement plans. (Bloomberg) (Reuters)

3.

Novonix leak fallout: The Australian securities watchdog has vowed to crack down on dealmakers and market players mishandling sensitive information after a leak caused significant share price fluctuations in lithium-ion battery producer Novonix. The Australian Financial Review on Wednesday reported a planned capital raise by Novonix, led by Citi, causing the stock to slump nearly 10% on the ASX before a trading halt. The incident has caused outrage in the broker community. One of them told Capital Brief the leak and the delay in halting trading was a "disgrace" and criticised Citi for its handling of the situation, which it labelled as insider information. A similar incident occurred in November with Karoon Energy's share price drop following a leaked capital raise with Macquarie. Novonix is expected to update and resume trading before Friday, with ASIC investigating. A spokesperson for the regulator warned such activities undermine market integrity and could deter capital raising and transactions in Australian markets. (Capital Brief)

4.

Dovish shift: Bond traders are starting to lean dovish and have moved bets for the first interest rate cuts by the Federal Reserve since 2020 to November, from December. Treasuries were rallying on Wednesday, New York time, with 10-year yields down to 4.289%, from 4.335% the previous day. Rates have fallen over a quarter point recently after the Fed’s preferred measure of inflation held steady and manufacturing and spending data was weaker than expected. Swaps traders now anticipate the first 25 basis point rate cut in November, a month earlier than before. Friday's US jobs report, the final one before next week's Fed meeting, is sure to further influence predictions on how soon the US central bank can start reversing its most aggressive policy in decades. Recent short covering in 10-year note futures and increased dovish hedges in the options market also reflect the change in sentiment, Bloomberg reported. JPMorgan’s Treasury client survey also showed long positions in the cash market are rising to the highest level since March. Traders are now also protecting against a faster pace of rate cuts, possibly two by September, indicating a shift in positioning due to the softer economic outlook. (Bloomberg) (WSJ)

5.

BoC cuts rates: The Bank of Canada (BoC) has become the first G-7 central bank to commence an easing cycle since the pandemic, cutting the benchmark overnight rate by 25 basis points to 4.75%. Policymakers led by governor Tiff Macklem said the decision came amid signs of easing inflation and moderate economic growth. "With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive," the bank said in a statement. “Recent data has increased our confidence that inflation will continue to move towards the 2% target.” The cut, widely anticipated by markets, signals potential for further reductions if progress continues, the officials said. It comes, however, amid global geopolitical tensions, rising home prices and relatively high wage growth. Bond yields fell and the Canadian dollar depreciated after the decision. In a press conference, Macklem said that while inflation is easing, the BoC remains cautious about reducing rates too quickly to avoid jeopardising economic progress. At 1.7%, Canada’s first-quarter GDP growth was weaker than expected, but consumption has strengthened, indicating a possible "soft landing," Macklem said. Canada’s cut came ahead of the ECB monetary meeting on Thursday, when markets widely expect it will also cut rates. The central banks of Switzerland and Sweden have also moved to ease policy rates as inflation risks fade. (Bank of Canada)

6.

Elliott's SoftBank encore: Elliott Management has amassed a significant stake in SoftBank Group — again — and is urging the Japanese firm to initiate a USD15 billion ($22.5 billion) share buyback. The US activist hedge fund has built a stake worth over $2 billion and has been in discussions with SoftBank’s executives, the Financial Times reported, citing unnamed sources. This move marks Elliott's second time targeting the Japanese tech group after it pushed for a $20 billion buyback in 2020. Elliott argues that a buyback would demonstrate SoftBank founder Masayoshi Son’s confidence in the company. The push comes amid rising interest in Japanese firms from activist investors and coincides with SoftBank's renewed focus on AI and semiconductor investments, boosted by the increased value of its majority stake in UK-based chip designer Arm Holdings. SoftBank's shares surged 4.6%. Despite strong cash reserves and low debt, SoftBank may be hesitant to conduct buybacks given its strategic investment plans. Son aims to invest significantly in AI and semiconductor ventures, including a potential $100 billion chip venture to compete with Nvidia and reported talks to acquire British startup Graphcore. With SoftBank shares up 56% this year and trading at over 50 times forward earnings, Elliott’s challenge lies in convincing SoftBank that buybacks are the best use of its substantial cash reserves. (Financial Times) (Wall Street Journal)

7.

Musk’s chip switch: Elon Musk has confirmed reports that Nvidia chips initially intended for Tesla's electric vehicle production were diverted to the social platform X. In a post on X, Musk said the Nvidia chips would have remained unused in a warehouse if not redirected. The statement came after a CNBC report on Tuesday revealed that 12,000 of Nvidia's H100 AI chips were reallocated to X, with additional orders then shifted to Tesla. The report highlighted criticism that Musk's focus on driverless cars, robotics and various other business interests may be overshadowing Tesla's core car business. Musk holds 13% of Tesla shares but wants 25% ownership for greater control. Tesla's annual general meeting on 13 June will address his pay package and ownership request. Musk’s post also mentioned that an extension to Tesla’s automotive manufacturing facility, Giga Texas, is almost complete and “this will house 50k H100s for FSD [full self-driving] training.” Tesla plans to increase its active H100 units from 35,000 to 85,000 by year-end, and will spend between USD3 billion and USD4 billion on Nvidia hardware purchases. Meanwhile, Australia’s eSafety Commissioner dropped the case against Musk’s X over a stabbing video, citing a strategic decision, with Musk hailing it as a victory for free speech. (WSJ) (Capital Brief)

8.

Texas trades up: A new contender in the US stock market scene, the Texas Stock Exchange (TXSE), has secured USD120 million ($180.5 million) in funding from investors including BlackRock and Citadel Securities. Aiming to challenge the dominance of the New York Stock Exchange (NYSE) and Nasdaq, the TXSE plans to begin trading operations in 2025, with its first listing anticipated in 2026. Headquartered in Dallas, the fully electronic exchange aims to attract companies seeking relief from high compliance costs associated with the NYSE and Nasdaq. TXSE’s CEO, James Lee, announced the funding and plans on LinkedIn. “Texas and the other states in the southeast quadrant have become economic powerhouses,” he said. Combined with the demand we are seeing from investors and corporations for expanded alternatives to trade and list equities, this is an opportune time to build a major, national stock exchange in Texas.” The state recently established the Texas Business Court for high-stakes commercial cases in competition to New York and Delaware. Previous challengers to the NYSE and Nasdaq have struggled to gain traction in the competitive US equities market. (Texas Stock Exchange statement) (WSJ) (Bloomberg)