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Japanese stocks pushed U.S. and European futures higher on Monday as excitement over artificial intelligence boosted the technology sector ahead of a week of central bank meetings, key economic data and financial results.
Chip stocks have been on the rise since Taiwan Semiconductor Manufacturing (TSMC) raised its earnings outlook last week, driven by rising demand for high-end chips for artificial intelligence applications.
That helped the Nikkei rise more than 1.5% to a new 34-year high, with January gains reaching nearly 9%.
Chipmakers like Nvidia and Advanced Micro Devices are among the beneficiaries of the rise of AI.
That should draw attention to results from Intel and IBM this week, as well as those from Tesla, Netflix, Lockheed Martin and a host of other companies.
Nasdaq futures continued their rally with a gain of 0.6%, while S&P 500 futures gained 0.2%. EUROSTOXX 50 futures rose 0.8% and FTSE futures rose 0.3%.
However, MSCI’s broadest index of Asia-Pacific shares outside Japan fell another 0.45%, having already suffered a setback last week.
The index was pressured by weakness in Chinese markets, which hit a five-year low last week and sparked speculation about the need for public funds to support stocks.
Beijing still appears reluctant to implement aggressive stimulus measures as the central bank once again refused to cut interest rates during its market operations on Monday.
The Bank of Japan is also expected to maintain its very accommodative monetary policy at its meeting on Tuesday, supported by a second month of declines in consumer prices.
Analysts widely expect the central bank to want to see whether spring wage cycles will lead to strong growth before deciding whether to tighten.
Based on the first “Shunto” results published in mid-March and the branch managers meeting in April, the BoJ will be able to confirm the sustainability of wages and end the negative interest rate policy in April,” analysts wrote Barclays in a note.
“We then expect gradual interest rate increases starting in the second half of 2024, but key interest rates are expected to remain well below neutral levels.”
The ECB is not under pressure
The European Central Bank (ECB) meets on Thursday and is seen as safe not to act given recent optimistic comments from its top officials.
“A rate cut in March remains logical, but the reaction from ECB officials has been strong in recent days, making a rate cut in June more likely,” said Giovanni Zanni, an economist at NatWest Markets.
“The data continues to support our long-held view that the ECB has probably gone too far in its rate hike cycle,” he added. “We believe a delay will likely require a bolder first step, with a 50 basis point cut more likely than a 25 basis point cut.
Futures have priced in 40 basis points of easing by June, with a 76% chance of a first cut in May.
The central banks of Canada and Norway also meet this week and no interest rate changes are expected, although Turkey is expected to raise rates again.
Markets also reduced the odds of a Federal Reserve rate cut in March to 49%, down from 75% a few weeks ago. However, an initial easing of 25 basis points in May is more than fully priced in.
Fed officials are in the dark this week ahead of the next meeting on January 30-31.
The prospects for early easing could be influenced by U.S. economic growth and core inflation data due later in the week.
Gross domestic product is expected to grow at an annual rate of 2% in the fourth quarter, while the core private consumer price index is expected to slow to an annual rate of 3.0% in December, compared to 3.2% in the previous month lowest since the beginning of 2021.
Recent data has tended to surprise, which explains why 10-year Treasury yields rose nearly 20 basis points to 4.12% last week.
The move supported the dollar, which hit a five-week high against a basket of currencies. It was slightly lower at 148.07 yen on Monday, after rising 2.2% last week, while the euro eased at $1.0900, after falling 0.5% for the week.
In this context, non-yielding gold looks unattractive at $2,023 an ounce.
In the oil market, worries about global demand have so far offset the threat that tensions in the Middle East pose to supply.
Brent lost 23 cents to $78.33 a barrel, while U.S. crude lost 25 cents to $73.16 a barrel in January.
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