LIVE MARKETS-Chip rally defies Nvidia's weak forecast

• Major U.S. indexes rally; Nasdaq up nearly 3%

• All S&P 500 sectors green; consumer discretionary in lead

• Dollar, gold down; crude, bitcoin up

• U.S. 10-Year Treasury yield rises to ~2.78%

May 26 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

CHIP RALLY DEFIES NVIDIA’S WEAK FORECAST (1230 EDT/1630 GMT)

U.S. chip stocks are rallying on Thursday, joining a broader rebound in growth stocks, despite a poor quarterly forecast from megacap Nvidia (NVDA.O) and following Broadcom’s announcement of a $61 billion deal to buy VMWare (VMW.N) .

Upbeat price action across chips and other tech stocks, despite some negative headlines, hints that Wall Street’s recent ‘sell first, ask questions later’ mentality may be changing.

Recently beaten down shares of Nvidia are jumping more than 5%, even after at least 13 brokerages cut their price targets following the company’s warning late on Wednesday of a slowdown in sales of graphics chips for videogames.

Rival Advanced Micro Devices is rallying almost 8% and the Philadelphia Semiconductor Index (.SOX) is gaining nearly 4%, up for a second straight day following weeks of punishment that have left it near one-year lows.

Nvidia and AMD are Wall Street’s second and third most traded stocks, with a combined $17 billion worth of shares traded, compared to $14 billion worth of shares traded in market leader Tesla (TSLA.O) .

Growth and tech names from Amazon (AMZN.O) to Roblox

(RBLX.N) are rebounding and the S&P 500 technology index

(.SPLRCT) is gaining 2.5%, even after a disappointing report late on Wednesday from Snowflake (SNOW.N) , which sent the cloud software firm’s stock down 1.3%.

Broadcom’s (AVGO.O) newly unveiled deal to buy VMWare, the chipmaker’s biggest bid to diversify its business into enterprise software, signals to investors that major deals remain on the table, even in the face of rising interest rates and the threat of a recession.

Thursday’s gain in the SOX puts the index at its highest level in six sessions, and leaves it down about 24% year to date.

(Noel Randewich)

A KEYNESIAN FEEL TO EUROPE’S CLOSE (1205 EDT/1605 GMT)

There was initially little reaction across the London stock exchange when British finance minister Rishi Sunak unveiled his plans for a 25% windfall tax on oil and gas producers’ profits.

It felt like the expected policy shift was already broadly priced in a classic ‘buy the rumor, sell the news’ twist.

As the dust now settles, however, it’s fair to say that the impact was, in fact, quite important for some UK utilities.

The FTSE 350 Utilities index, at first little moved by the new tax, started to seriously lose ground around 1300 local time and was down over 4% at the close, with British gas owner Centrica losing over 7%:

One must note, however, that the plan’s fine prints meant some big corporate names felt little pain.

“BP (+1.7% at the close) in particular has promised big investment in the UK’s energy infrastructure, investment that will now deliver a rather impressive tax break”, Danni Hewson, an analyst at AJ Bell wrote in a note.

But the most impressive market price action triggered by Sunak’s plan didn’t occur because of the windfall tax, but rather by the boost on demand provided by his 15 billion pound package to help households cope with soaring energy bills.

Given the expected fiscal boost, economists at AXA Investment Managers said they lifted their 2022 UK GDP forecast from 3.8% to 4%.

Shares in UK retailers, which were on a rising trend since the open, kept at it through the session and closed with whopping gains.

“Beleaguered retailers enjoyed something of a renaissance,” commented AJ Bell’s Hewson, adding that “those middle-income shoppers might not trade down in search of value particularly when it comes to special occasions like next weekend’s Jubilee”.

Marks & Spencer led the way up and jumped 8%:

There was a clear crossover effect on the broader market with the pan-European retail index jumping 4.8%, by far the best-performing segment of the market.

In the same manner, the pan-European utility index was the worst performer, losing 1.2%.

All in all, Europe’s STOXX added 0.8%.

See: UK imposes 25% energy windfall tax to help households as bills surge

(Julien Ponthus)

A SHEEP IN WOLF’S CLOTHING: GDP, PENDING HOME SALES, JOBLESS CLAIMS (1105 EDT/1505 GMT)

Data released on Thursday brought good news wrapped in bad - while inflation persists and warrants expected Fed tightening, the economy is showing signs of softness which could prompt a dovish pivot from Powell & Co by autumn.

The U.S. economy contracted a bit more than originally thought in the first quarter, dropping 1.5% on a quarterly annualized basis.

The Commerce Department’s second stab at GDP data

(USGDPP=ECI) unexpectedly added 0.1 percentage point to the decline, moving in opposition to consensus expectations, which predicted a 1.3% reading.

Many analysts believe the first-quarter contraction was a one-off glitch.

“Our baseline remains that the economy will continue to expand this year, but the pace will moderate,” says Rubeela Farooqi, chief U.S. economist at High Frequency Economics, who adds that the economic landscape “currently remain(s) favorable for (Fed) policy normalization.”

On a granular level, much of the downward revision appears to be due to steeper-than-previously-reported drops in construction spending - particularly in the residential segment - and federal government outlays.

The biggest drag on first-quarter GDP was the yawning trade gap, followed by inventory depletion, the latter a likely symptom of ongoing supply chain headaches:

The report’s most pleasant surprise was the upgrade in the personal expenditures component to 3.1% from 2.7%, a sign that the American consumer - who is responsible for about 70% of the economy - was healthy and kicking in the opening months of the year.

In total, as illustrated in the graphic below, consumers mitigated the topline decline by 2.1 percentage points:

But that was then; the first quarter of 2022 seems like ancient history, and more recent data suggests a slowdown in consumer spending, as punishingly high inflation threatens to dampen their purchasing power.

Nowhere is that more apparent than the housing market, where home affordability is fading as rising housing prices and mortgage rates are shoving the prospect of ownership beyond the grasp of many potential buyers.

Signed contracts for the sale of pre-owned U.S. homes

(USNAR=ECI) decreased by 3.9% last month, according to the National Association of Realtors (NAR).

Not only did the print undershoot the 2.0% projected drop, it marked an acceleration from March’s sharper-than-previously-reported 1.6% decline.

With this, pending home sales - considered among the more forward-looking housing market indicators - have fallen for six straight months, continuing their descent below pre-pandemic levels.

In fact, contracts for existing home sales have plunged to the “slowest pace in nearly a decade,” says Lawrence Yun, chief economist at NAR. “Escalating mortgage rates have bumped up the cost of purchasing a home by more than 25% from a year ago, while steeper home prices are adding another 15% to that figure.”

Finally, the number of U.S. workers filing first-time applications for unemployment benefits (USJOB=ECI) last week came in below expectations, falling by 3.7% to 210,000.

While still at the lower end of a range economists typically associate with healthy labor market churn, the slide in jobless claims speaks to ongoing tightness in the labor market as evidenced by low unemployment and a near record number of job openings.

That, in turn, increases probability that high wage inflation is staying hot, for now, and will help keep the Fed’s feet to the fire.

But calling last week’s dip in initial claims a “partial correction,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, says the “trend in claims probably is rising slowly,” and therefore “consistent with the idea that payroll growth is slowing.”

The chart below shows this upward trend - jobless claims hit their trough in late March at 166,000, 26.5% below last week’s reading.here

Ongoing claims (USJOBN=ECI) , reported on a one-week lag, defied analyst forecasts by surging 2.4% to 1.346 million, also supporting the notion that the tight labor market could be on the cusp of loosening its grip.

Investors were in a buying mood in morning trading, sending all three major U.S. stock indexes sharply higher.

Economically sensitive transports (.DJT) , chips (.SOX) and smallcaps (.RUT) were outperforming, but megacap market leaders were providing the muscle.

(Stephen Culp)

WALL STREET EXTENDS WED’S RALLY IN EARLY GOING (1000 EDT/1400 GMT)

The three major U.S. stock indexes are up more than 1% in early trading Thursday, with the market on track to extend Wednesday’s jump with consumer discretionary leading sector gains for a second day.

Indexes staged a late rally Wednesday in the wake of minutes from the most recent Federal Reserve meeting. The minutes showed policymakers agreed that inflation was a key risk for the economy and that all participants at the May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation.

Some market watchers said the minutes gave some relief to investors worried about seeing a more hawkish tone from policymakers.

Data Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, while a separate report confirmed the economy contracted in the first quarter.

Investors have increasingly worried that an aggressive Fed could eventually force the U.S. economy into recession.

All major S&P 500 sectors are higher, with consumer discretionary (.SPLRCD) leading the pack for a second-straight session.

Shares of Macy’s (M.N) are up 14% after the retailer reported results and raised its guidance. The upbeat news follows some disappointing reports from other retailers.

Here is the early market snapshot:

(Caroline Valetkevitch)

NASDAQ COMPOSITE: RIPE FOR RALLY OR REAL TURN? (0900 EDT/1300 GMT)

Over the past several weeks or so, the Nasdaq Composite

(.IXIC) has been chopping around sticky support. With this, one measure on internal strength, the Nasdaq New High/New Low (NH/NL) index is mounting a constructive turn suggesting burgeoning underlying strength.

Since first testing the 50% retracement of the March 2020-November 2021 advance, at about 11,422, on May 11, IXIC closing and intraday violations of this level have been at most 1.4%-3.4%, before the index has snapped back above it. With Wednesday’s upward reversal, the Composite ended slightly above it at 11,434, and up around 0.6% vs its May 11 close.

Of note, neither CME e-mini Nasdaq 100 futures (NQcv1) , or the Nasdaq 100 (.NDX) , which have also been testing their 50% retracement, has yet to see a closing violation of it - click here:

Meanwhile, on May 19, the Nasdaq NH/NL index fell to just 3.8%, which was its lowest reading since a 3.6% print on March 26, 2020. This measure hit a low of 1.2% on March 23, 2020, which marked the Nasdaq’s pandemic-crash bottom:

The NH/NL index has crossed above its 10-day moving average (DMA) and has now risen four-straight days, ending Wednesday at 6.3%.

Admittedly, the measure’s current 4-day rate-of-change is the second weakest such thrust off of a sub-5% trough in its history. That said, the NH/NL index is rising off a historically low level and is now above its 10-DMA.

Since the measure has not shown a tendency to flat-line at low levels, a further rise would suggest greater internal Nasdaq strength, which could underpin a surprise IXIC rally of some form. The early-April high was 42%.

A break back below the 10-DMA, which ended Wednesday at 4.5%, can suggest potential for a fall even closer to zero. The all-time low was 0.5% in November 2008.

(Terence Gabriel)

FOR THURSDAY’S LIVE MARKETS’ POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:

IXICNHNL05262022 here Early US market snapshot here GDP here GDP consumer contribution here Pending home sales here Jobless claims here retail here uk utilities here

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)