U.S. stock futures fall after report of fresh chips-to-China ban hits Nvidia and other AI players

What’s driving markets

Nasdaq futures were leading early declines following a report that the Biden administration is considering a new ban on sales of AI chips to China.

The dip in the tech-heavy index dented the latest rally, which came after traders on Tuesday welcomed some upbeat U.S. data on durable-goods orders, home sales, and consumer confidence, analysts noted.

“The rebound has been clipped a bit overnight” after the AI chip ban report, said Jim Reid, strategist at Deutsche Bank.

“Nvidia, which makes 20% of its revenues in China, has produced lower-end chips that don’t require an external export licence. However, the article suggests that even these may be included going forward. Nvidia and AMD are both down over 3% after hours, with China AI-related stocks slumping more,” Reid added.

In Wednesday’s premarket, Nvidia
NVDA,
-2.23%
stock was down 3.2%, and Advanced Micro Devices
AMD,
-2.15%,
another AI chip maker, dropped 2.8%.

In U.S. economic data, U.S. trade deficit in goods fell 6.1% in May to $91.1 billion.
U.S. advanced retail inventories in May jumped 0.8%, while U.S. advanced wholesale inventories in May drop 0.1%.

Traders also will be keeping an eye on Sintra in Portugal, where the European Central Bank is holding its annual forum on central banking, including at 2:30 p.m. BST (9:30 a.m. Eastern time) a panel containing Jay Powell, the Federal Reserve chair, alongside the heads of the U.K., eurozone and Japan central banks.

Investors remain wary of the prospects for higher borrowing costs as monetary guardians continue to battle stubborn inflationary pressures, so any comments on that topic, particularly from Powell, may color the market’s mood.

However, Mark Newton, head of technical strategy at Fundstrat reckons recent market action portends further gains.

“Tuesday’s rally back to multi-day highs looked important and positive in having halted the recent decline in its tracks. Following five days lower out of the past six, SPX [S&P 500] managed to rally sharply enough to recoup nearly 50% of the entire pullback since mid-June highs,” wrote Newton in a note.

“As discussed in recent days, the lack of severe downside breadth on recent weakness was thought to be encouraging, and a few days of large-cap technology weakness largely camouflaged market performance, as many sectors performed quite well throughout last week. Going forward, I view Tuesday’s strong gains as having been constructive, and should lift SPX back to test and exceed mid-June highs, which could help prices surpass SPX-4500,” Newton added.

Companies in focus

• Nvidia Corp.
  NVDA,
  -2.23%
  and Advanced Micro Devices Inc. shares
  AMD,
  -2.15%
  fell nearly 5% and 3.5%, respectively, ahead of Wednesday’s open after the Wall Street Journal reported that the Biden administration is preparing to put more curbs on sales of chips crucial for artificial intelligence to China.

• General Mills
  GIS,
  -4.98%Inc.’s
  stock slid 5% premarket Wednesday, after the parent of brands including Cheerios, Nature Valley, Blue Buffalo pet products and Pillsbury, posted a steep decline in profit and weaker-than-expected sales for its fiscal fourth quarter.