An early rally in US equities on Thursday fizzled out by late morning, following the release of more economic data suggesting that the Federal Reserve will press ahead with its rate hiking agenda.
Unemployment claims fell to 192,000, below analysts’ forecasts and under 200,000 for the sixth consecutive week, in a sign of the continued robustness of the labour market.
The blue-chip S&P 500 fell 0.5 per cent, and the tech-heavy Nasdaq Composite dropped 0.6 per cent.
The reversal on Wall Street tempered a rally in Europe, where the region-wide Stoxx 600 closed 0.1 per cent higher, while Germany’s Dax rose 0.5 per cent and France’s CAC 40 climbed 0.3 per cent.
Federal Reserve Bank of New York president John Williams was the latest central bank official to hint at higher for longer rates, emphasising on Wednesday the importance using monetary policy to achieve the Fed’s 2 per cent inflation goal.
“Our job is clear, our job is to make sure we restore price stability, which is truly the foundation of a strong economy,” he said.
Fears of further rate rises quashed optimism earlier in the day after strong earnings overnight from US chipmaker Nvidia, whose results beat analysts’ expectations, in part because its graphics cards are used by the booming artificial intelligence sector.
Nvidia shares rose 12 per cent, lifting the prices of Asian and European peers such as Taiwan Semiconductor Manufacturing, up 2 per cent, and ASML of the Netherlands, which added 0.6 per cent. The Philadelphia Semiconductor Index, which tracks 30 semiconductor companies, rose 1.5 per cent.
In the UK, Rolls-Royce shares jumped 24 per cent after beating earnings forecasts.
Investors say that despite strong earnings growth, a recession in the US is still on the cards.
“Earnings have been resilient, which doesn’t surprise us,” said James Ashley, head of international market strategy at Goldman Sachs Asset Management. “If a recession happens it will be the middle to back end of the year, and the depth and length is likely to be shorter and shallower.”
Earlier in the week stocks declined after investors judged that the US Federal Reserve will keep interest rates higher for longer to curb inflation. The S&P 500 and Nasdaq are down 2.6 and 2.9 per cent, respectively, this week.
Minutes from the Fed’s January policy meeting, released on Wednesday, showed that most officials backed the decision to raise benchmark interest rates by 0.25 percentage points and a few preferred a half-point increase. However, the meeting took place before a batch of economic data released in recent weeks that showed that the economy was more resilient than economists had expected.
“At the [Federal Open Market Committee] itself, the market was looking for anything dovish to latch on to,” said analysts at ING. “From the minutes, that’s flipped, with the market now fretting over any hawkish hints.”
The euro was down 0.2 per cent, while the dollar index, which measures the greenback against a basket of six other currencies, gained 0.2 per cent.
US Treasury yields dropped, with 10-year notes down 0.02 percentage points at 3.9 per cent, and two-year notes, which are more sensitive to monetary policy, flat at 4.7 per cent.
Hong Kong’s Hang Seng index fell 0.4 per cent, while China’s CSI 300 lost 0.1 per cent.
Brent crude rose 1.3 per cent to $81.67 per barrel, while WTI, the US equivalent, gained 1.3 per cent to $74.89.
