Written by Equities rise as tech stocks lead rebound
Shares on Wall Street closed higher on Monday after a rocky start, as AI-related stocks staged a comeback, recovering about half of the 10-day selloff that was sparked by concerns about valuations and disruptions from AI to traditional companies. The Nasdaq Composite jumped 0.9%, the S&P 500 by 0.5%, while the Dow Jones just about eked out gains to close at a new record high.
The two-day bounce back suggests last week’s panic was overblown, as it’s probably too early to gauge the impact of AI on software and data providers, while so far, the Q4 earnings round has been mostly upbeat despite some of the guidance falling short of the high expectations.
Coca-Cola and Ford will be some of the companies reporting their results later today.
US data eyed for direction, Nikkei surges again
US futures are currently pointing to a flat open amid some caution ahead of the first of the three major US data releases this week. Following the batch of weaker-than-expected employment indicators last week, today’s retail sales report will be watched for any signs that the softer labour market could be hurting consumers.
On the bright side, investors are more confident that the Federal Reserve will deliver at least two 25-basis-point cuts this year. There’s also a strong possibility of the odds of a third reduction being boosted tomorrow should the delayed nonfarm payrolls report confirm the deteriorating jobs picture. Yet, Friday’s CPI numbers pose a downside risk to equities and an upside one to the US dollar.
In the meantime, stocks in Asia are also benefiting from the improved mood. Japan’s Nikkei 225 index rallied again today, surging by 2.3% to a new all-time high, as investors cheer the outcome of the weekend snap elections. Prime Minister Sanae Takaichi’s victory in winning a supermajority in parliament gives her free rein to push through her policies, including her election pledge to temporarily cut the sales tax on food, and this can be only positive for Japanese equities.
Yen stretches gains, Swissie outperforms too
However, it’s not necessarily good news for the yen, which only turned higher on repeated intervention warnings by Japanese ministers on Monday. The dollar is extending its decline versus the yen this week, easing to around 155.30 yen. But against other majors like the euro and pound, the greenback is slightly firmer, recouping some of yesterday’s sharp losses.
The euro was one of Monday’s top performers, gaining 0.8% against the dollar to reclaim the $1.19 level. The aussie and Swiss franc also stood out yesterday, with the former still riding high on the expectation of further RBA rate hikes to come, while the Swiss franc likely enjoyed some safety flows on concerns that China is increasingly turning away from investing significantly in US Treasuries.
A similar trend is observed from other emerging market nations, yet the reaction in Treasury yields has so far been limited.
Euro and pound ease off highs
Aside from strengthening Fed rate cut expectations, the euro’s renewed bullish momentum is possibly being supported by commentary from ECB officials yesterday, including from President Lagarde, that the central bank isn’t in a hurry to react to inflation temporarily falling below the 2.0% target. Remarks from Governing Council member Martin Kocher probably added to the euro’s upside after he hinted that the ECB wouldn’t mind for the euro to have a bigger reserve currency status.
The pound also managed to post solid gains on Monday, briefly touching $1.3700, despite a fresh political storm in Westminster. UK Prime Minister Keir Starmer is just about holding onto his position following pressure from within his Labour party for him to step down amid anger over his decision to appoint Peter Mandelson as ambassador to the US, even though his links to Jeffrey Epstein were known at the time.
Cabinet ministers have rallied round Starmer, helping him stave off a further deepening of the crisis, at least before the February 26 by-election, with UK yields dropping back today.
Gold and Bitcoin on the backfoot
Gold is trading slightly lower on Tuesday, as the two-day rebound pauses for breath. The somewhat stronger dollar is a hindrance to the bulls, but technical resistance just below the $5,100 level is also likely acting as a short-term obstacle.
This week’s NFP and CPI reports will be key in determining whether gold can make a convincing recovery above $5,000.
Any boost to Fed rate cut expectations would also be positive for Bitcoin, which is on the slide again after its attempt at breaking above the $70,000 handle ran into trouble.
By XM.com
