Fitch downgrade warning, debt limit impasse, Nvidia soars - what's moving markets

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Fitch downgrade warning, debt limit impasse, Nvidia soars - what's moving markets -- Fitch warns that the U.S.' sterling credit rating may be at risk as the debt ceiling stalemate brings the world's largest economy closer to a possible default. Elsewhere, Federal Reserve officials mull over a possible pause to its interest rate hiking campaign, while AI demand powers Nvidia to a first-quarter earnings beat.

1. Fitch issues U.S. downgrade warning

Uncertainty is building around the future creditworthiness of the U.S., Fitch has warned, as lawmakers in Washington struggle to overcome an impasse in talks to raise the $31.4 trillion debt limit and avoid a possibly catastrophic default.

Late on Wednesday, the ratings agency placed its top-level "AAA" rating of the U.S. on negative watch, saying that "brinksmanship" over the debt ceiling represents a large downside risk to trust in the country's ability to pay back its debts. But it emphasized that the probability of a default is still low.

House Speaker Kevin McCarthy called the latest round of negotiations yesterday productive, while a Biden administration spokesperson claimed that an agreement can be reached. However, neither laid out a definitive timeline for a potential deal, with both sides still at odds over spending plans.

Time is running ever shorter: The Treasury Department has warned that the federal government could run out of money to pay its bills as soon as June 1.

2. Futures mixed amid debt ceiling gridlock

U.S. stock futures were mixed on Thursday, with investors trying to gauge the outlook for the borrowing limit negotiations and digest the downgrade warning from Fitch.

At 05:10 ET (09:10 GMT), the Dow futures contract shed 70 points or 0.21%, while S&P 500 futures gained 24 points or 0.60%, and Nasdaq 100 futures added 234 points or 1.72%.

Waning optimism over the debt ceiling talks weighed on the main indices in the prior session. The benchmark S&P 500 fell by 0.73%, the broad-based Dow Jones Industrial Average lost 0.77%, and the tech-heavy Nasdaq Composite dropped by 0.61%.

But those losses were mitigated after minutes from the Federal Open Market Committee's May meeting showed policymakers were "less certain" that further interest rate hikes were needed due to heightened risks to broader economic activity (see below).

3. To pause or not to pause

At its meeting earlier this month, the FOMC voted for a tenth consecutive increase in borrowing costs in a little over a year in a bid to corral elevated inflation. But, according to the minutes from that two-day gathering, officials from the Federal Reserve are considering bringing that campaign of policy tightening to a halt.

The participants "generally agreed" that the lagged effects of the rate rises on the economy, coupled with recent turmoil in the banking sector, had at least called into question whether another hike was appropriate. However, some members were keen to keep policy flexible in order to react to future movements in inflation.

Debate still remains over whether the FOMC will indeed push pause on the rate-hiking cycle at its next policy meeting in June. Based off the minutes, much will likely depend on upcoming economic data, including the May jobs report and inflation reading .

4. AI tech demand fuels Nvidia beat

Shares in Nvidia (NASDAQ: NVDA ) soared by more than 24% in premarket trading on Thursday after the U.S. graphics card giant logged a better-than-expected first-quarter profit.

The world's most valuable semiconductor firm said that it is seeing a jump in sales of its data center chips, which play a central role in powering artificial intelligence technology that has seen a spike in popularity this year.

This AI-fueled uptick in demand also led Nvidia to unveil a revenue forecast for the second quarter that topped analysts' own estimates.

Shares in Nvidia's major Asian suppliers surged after the results, while chipmakers in Europe also rallied.

5. Oil slips as Russia downplays possible OPEC+ output cuts

Oil prices dropped on Thursday, retreating from three-week highs, after comments from a top Russian official tempered expectations that OPEC+ will slash production at its upcoming meeting.

At 05:11 ET, U.S. crude futures traded 1.36% lower at $73.33 per barrel, while the Brent contract dipped by 1.21% to $77.41.

In a newspaper interview, Russian Deputy Prime Minister Alexander Novak said that he did not believe there will be "any new steps" taken at the June 4 gathering of the Organization of Petroleum Exporting Countries and its allies.

Prices had spiked in the prior session when Saudi Arabia's energy minister warned short-sellers that they should "watch out," which many observers interpreted as a possible sign that OPEC+ would lower output next week.

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