Fresh chip wars feared and China’s industrial profits slide but US economic prospects lift sentiment

• Upbeat sentiment prevails despite the US considering fresh chip curbs and Chinese data disappointing.
• US indices closes on a high as the economy shows signs of strength, but chip firms Nvidia and AMD lose ground in after-hours trading.
• FTSE 100 opens higher, taking  a cue from Wall Street amid hopes US economy will avoid a hard landing.
• Chinese industrial firms notch up an 18.8% year-on-year slump in profits for the January to May period.
• Brent crude settles above $73 a barrel following falls on Tuesday.
• Investors will assess views of policymakers at the ECB conference in Portugal.

Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Upbeat sentiment about signs of resilience for the mighty American economy is over-riding worries about China’s flagging recovery and fresh signals that another twist in the chip wars is set to emerge.

Reports that President Biden is considering slapping further export bans on AI chips headed for China dented the share price of Nvidia and AMD in after-hours trading. The chip makers which have been enjoying a boom amid expectations of soaring demand for artificial intelligence largely erased gains made over the session. Nvidia had been designing new graphics chips which would not be included in current export restrictions, but the Biden administration is still thought to be concerned that China could still use the technology for potential military applications. With an update on export controls now expected, investors will be assessing just how limiting the new rules will be for chip makers’ sales. A handful of tech companies pack a huge punch on Wall Street due to their sheer size, so any wobble in confidence reverberates on indices.

Stocks on Wall Street had bucked previous downbeat sessions, after data indicated American consumers were more confident than they’d been for over a year, according to the Conference Board survey, alongside stronger durable goods orders. This is being taken as good news, even though past indications of strength had the propensity to be read as a bad omen for ever higher rate hikes. Investors seem more accepting that further price hikes are to come, with two mapped out on the Fed’s dot plot, but they are assessing that the US economy is sturdy enough to withstand further tightening without heading for a hard landing.

Hopes for resilience in the world’s largest economy is off-setting concerns about China’s lacklustre performance. Chinese industrial profits have slid sharply since the start of the year as the recovery has lost steam. The FTSE 100 has taken a cue from trading on Wall Street to open slightly higher despite the scale of China’s slowdown becoming apparent with data for May showing firms extended their double-digit decline in profits.

Oil prices have started to reverse some of Tuesday’s losses, which appear to have been exacerbated by ECB President Christine Lagarde’s comments that central banks still have a way to go when it comes to tightening monetary policy raising fresh worries about demand. But data out showing crude oil stocks fell more sharply than expected this week by 2.4 million barrels, with the lower oil price leading to increased orders, has caused prices to drift back upwards again.

As central bank policymakers meet at the ECB forum in Portugal investors will be digesting all snippets of information in speeches which may indicate how much further rates will need to be ramped up. A policy panel including Christine Lagarde, Bank of England governor Andrew Bailey, Fed Chair Jerome Powell and Kazuo Ueda the governor of the Bank of Japan will be particularly closely watched for their views on how long sticky inflation will linger and how long consumers will swallow price rises before spending is curtailed.”