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US stocks edge up despite rate rise worries

US stocks crept higher on Thursday, following the release of more economic data suggesting that the Federal Reserve will press ahead with its agenda to tighten monetary policy.

The blue-chip S&P 500 closed up 0.5 per cent, and the tech-heavy Nasdaq Composite added 0.7 per cent. A rally at the opening dissipated by late morning, but stocks advanced again after lunchtime.

US chipmaker Nvidia surged 14 per cent after its fourth-quarter results released on Wednesday beat analysts’ expectations and the company signalled its intentions to push further into the artificial intelligence sector.

Shares of Nvidia’s peer in Asia and Europe also rose, with Taiwan Semiconductor Manufacturing adding 2 per cent and ASML of the Netherlands up 0.3 per cent. The Philadelphia Semiconductor Index, which tracks 30 semiconductor companies was up 3.3 per cent.

Line chart of Price on Nasdaq Composite ($ per share) showing Nvidia shares hit six-month high as AI boosts earnings

Investors say that despite strong earnings growth in the US, a recession 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.”

Data released on Thursday showed that unemployment claims fell to 192,000, below analysts’ forecasts and under 200,000 for the sixth consecutive week, in a sign of the continued labour market tightness.

US Treasury yields dropped slightly, with 10-year notes down to 3.88 per cent, and two-year notes, which are more sensitive to monetary policy, flat at 4.70 per cent. Bond prices rise when yields fall.

Federal Reserve Bank of New York president John Williams was the latest central bank official to hint at higher interest rates for longer, emphasising on Wednesday the importance of using monetary policy to achieve the central bank’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.

Earlier in the week stocks declined after investors judged that the Fed will keep rates higher for longer to curb inflation. The S&P 500 and Nasdaq are down 1.6 per cent and 1.7 per cent, respectively, so far 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 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.”

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 0.2 per cent.

In the UK, the FTSE 100 lost 0.3 per cent, but Rolls-Royce shares jumped almost 24 per cent after beating earnings forecasts.

Hong Kong’s Hang Seng index fell 0.4 per cent, while China’s CSI 300 lost 0.1 per cent.

Brent crude rose 2.2 per cent to $82.44 a barrel, while WTI, the US equivalent, gained 2.2 per cent to $75.59 a barrel.

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