Stocks Steady As Crude Rebounds, Nvidia Lifts Chip Sector

Global stocks held their ground on Thursday as strong earnings from chip giant Nvidia prepared the ground for a firmer start on Wall Street.

Oil prices recouped ground lost in earlier sessions, while the dollar index rose to is highest in nearly seven weeks, before later easing, as traders stuck to the view the U.S. Federal Reserve will keep raising rates by a quarter of a point at its next three meetings.

Better-than-expected revenue at Nvidia (NVDA.O) after hours sent its shares up 9% on Wall Street, helping to push Nasdaq futures 1% higher on Thursday, along with shares in Taiwan Semiconductor Manufacturing Co (2330.TW), and European peers such as ASM International (ASMI.AS) and BE Semiconductor (BESI.AS).

The MSCI all country share index (.MIWD00000PUS) was barely firmer as the year’s 4.5% advance stalled. In Europe, the STOXX (.STOXX) index of leading European companies was 0.3% higher, consolidating its 8.8% gain for the year to nearly wiping out much of last year’s 13% loss.

Nearly all Fed policymakers backed further slowing the pace of rate hikes, minutes of the U.S. central bank’s last policy meeting showed on Wednesday, but it also indicated that curbing unacceptably high inflation would be the “key factor” in how much further rates need to rise.

“It feels like we hit a bit of turning point where we are hearing more hawkish sentiment and central banks may hike rates a little bit more than expected a few weeks ago,” said Justin Onuekwusi, head of EMEA retail investments at Legal & General Investment Management.

“We’ve had data coming in stronger, so there is a risk that the momentum and enthusiasm is starting to wane in equity markets,” Onuekwusi said.

Euro zone data on Thursday showed inflation was marginally higher in January than previously estimated, but confirming that price growth is past its peak though the European Central Bank has already promised another 50-basis point hike in March.

Euro area bond yields headed back to multi-year highs in anticipation of further interest rate hikes.

Bank of England rate setter Catherine Mann said the central bank should continue to raise borrowing costs, but her remarks had little impact on the sterling.

Ahead of the opening bell on Wall Street, Dow futures were up 0.3%, S&P 500 futures gained 0.5%. The second reading of fourth quarter gross domestic product and weekly jobless claims data are due.

STOCK RALLY FIZZLES

The early-year rally in stocks has succumbed to a realisation that the Fed will continue to increase interest rates to cool the economy and tame inflation, analysts say.

This has pushed safe-haven bond yields higher, making risky stocks less attractive, with the Fed’s next meeting nearly a month away on March 22. The yield on 10-year Treasury was slightly firmer at 3.9254%.

Eren Osman, managing director of wealth management at Arbuthnot Latham & Co, said bond yields were starting to price in a higher terminal rate of 5.5% rather than 5.25% for the Fed.

“From the minutes of the Fed, I take out of it a bonus that they appear to be more balanced in their inflation outlook, they recognise risks to the economy are skewed to the downside,” Osman said.

Markets were also bracing for a “no landing” scenario where global economic growth is resilient and inflation stays higher for longer, leading investors to dial back appetite for risk assets and government debt, analysts said.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) touched its lowest level since Jan. 6 in early trade, but rose about 0.3% as the day wore on.

The Bank of Korea also offered some relief by ending a year-long run of uninterrupted rate hikes with a pause, as expected.

The Australian and New Zealand dollar were both slightly firmer against the dollar.

The euro was little changed at $1.061.

Crude oil futures lost more than $2 a barrel on Wednesday on expectations of more aggressive interest rate hikes. On Thursday Brent crude futures rose 1% to $81.42 a barrel, while West Texas Intermediate crude advanced 1% to $74.70 a barrel.

Wall Street indexes fell overnight and are eyeing their worst week of the year so far as stronger-than-forecast U.S. labour, inflation, retail sales and manufacturing figures have traders pricing interest rates staying higher for longer.

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