Explosive Chipmaker Earnings Nvidia pushed U.S. stocks higher on Thursday, eclipsing concerns over a debt ceiling deal and rising interest rates.
Wall Street’s tech-heavy Nasdaq Composite jumped 1.6% while the benchmark S&P 500 rose 0.8%, rebounding from losses earlier in the week.
Both were backed by Nvidia, which rose more than a quarter in afternoon trading, boosting the company’s market capitalization by about $200 billion. Nvidia quarterly income Wednesday far exceeded analysts’ expectations, propelled by growing demand for chips used in generative artificial intelligence systems. Microsoft and Alphabet, which are heavily involved in AI development, rose 3.5% and 1.7% respectively.
ASML, Europe’s largest technology company, rose 5% and BE Semiconductor 7.6%. In Asia, South Korea’s SK Hynix jumped 5.9%.
In the United States, the yield on short-term Treasuries rose as investors bet more that the Federal Reserve would raise interest rates again this year. Weaker-than-expected jobless claims and an upward revision to first-quarter gross domestic product figures prompted the review.
The yield on two-year Treasury bills – which moves with interest rate expectations – rose 0.16 percentage points to 4.5%, while the yield on 10-year bonds rose by 0.09 percentage point to reach 3.81%. In the futures market, traders forecast a further 0.25 percentage point increase in interest rates by July.
Expectations of higher interest rates generally hurt stocks, with tech names often viewed as more sensitive.
Republican negotiators said on Thursday that progress had been made in debt ceiling talks, although an agreement has yet to be reached.
Yields on Treasuries maturing next month – close to when the US government could run out of cash – were 5.5% on Thursday, after rising to 5.7% overnight, their highest level in more than 20 years.
Fitch, the rating agency, reported that it could downgrade the United States’ credit rating and put its triple-A rating on negative watch, due to “heightened political partisanship hampering the resolution” of the debt ceiling.
Fitch last put the United States on negative watch during debt ceiling negotiations in Washington in October 2013, two days before that year’s so-called X date, when the government was expected to run out of cash.
In the UK, gilts sold off again, after falling on Wednesday after data showed inflation fell to 8.7% in April – a much smaller drop than the Bank had expected. from England.
The two-year gilt yield rose 0.17 percentage points to 4.5%. At the end of last week, the yield was below 4%.
The 10-year bond yield also rose by 0.16 percentage points to 4.36%, approaching levels reached in October 2022 when the “mini” budget of then Chancellor Kwasi Kwarteng sent the financial markets into a tailspin.
Traders have raised their outlook for UK interest rates and now expect rates to peak at 5.5% by the end of the year, down from forecasts of 4.9% barely a week ago.
“There is a lingering fear associated with out-of-control inflation in the UK [ . . . ] there have been concerns about the ability of the central bank to address this issue,” said Joel Kruger, market strategist at LMAX Group.
London’s FTSE 100 traded down 0.7% on Thursday, making it the biggest drop in Europe among major markets.
In Asia, Hong Kong’s Hang Seng index lost 1.9% while China’s benchmark CSI 300 index fell 0.2%. Japan’s Topix fell 0.3%.