Monday, January 22, 2024

Central banks loom as Japan leads Asia's stock market rises.

As AI excitement boosted the tech sector ahead of a busy week filled with central bank meetings, important economic data, and corporate earnings, Asian equities rose today, tracking Tokyo's gains.

Since Taiwan Semiconductor Manufacturing (TSMC) raised its profit forecast last week due to the surge in demand for high-end chips used in artificial intelligence (AI) applications, chip stocks have been rising sharply, pushing the Nikkei.N225 to a record 34-year high.

The index increased by 0.8% early today, bringing its January gains to 8.3%.

Nvidia and Advanced Micro Devices were two of the chipmakers that benefited from the AI-driven boom.

That ought to increase focus on this week's earnings from Tesla, Netflix, Lockheed Martin, IBM, and Intel, among many other companies.

After closing at a record on Friday, S&P 500 futures increased by 0.1%, while Nasdaq futures increased by 0.3%.

After taking a beating last week, MSCI's broadest index of Asia-Pacific shares outside of Japan increased by 0.3%.

Central banks loom as Japan leads Asia's stock market rises.

The decline in China's markets, which this week saw five-year lows and raised concern that state funds may have to back stocks, has put pressure on the index.

It appears that Beijing is still hesitant to implement significant stimulus, and today's market operations are likely to see the central bank again forego a rate cut.

In a meeting tomorrow, the Bank of Japan is anticipated to maintain its ultra-loose policy, aided by a second month of declining consumer prices.

Analysts generally assume that before determining whether to push toward tightening, the central bank will wait to see if the spring wage increases provide robust growth.

"The BoJ will be able to confirm the sustainability of wages and exit negative interest rate policy in April, drawing on the first'shunto' results released mid-March and the April branch managers' meeting," Barclays analysts wrote in a note.

"After that, we anticipate gradually raising rates starting in H2 24, but policy rates should stay well below neutral."

ECB is not in a hurry

Thursday's meeting of the European Central Bank (ECB) is expected to be uneventful due to recent hawkish remarks made by senior members.

An economist at NatWest Markets named Giovanni Zanni stated, "A March cut still makes sense, but the pushback from ECB officials has been potent in recent days, making a June cut more likely."

"Our long-held belief that the ECB likely overreached in its rate-rising cycle is still supported by data," he concluded. "We think that a delay will probably mean that a more daring initial move a 50bp cut is more likely than a 25bp one will be necessary."

By June, 40 basis points of easing have been priced in by futures, with a 76% possibility of a first decrease in May.

No change in interest rates is anticipated for this week's meetings of the central banks in Canada and Norway.

Markets have also reduced the likelihood of a March rate drop by the Federal Reserve to 49% from over 75% a few weeks ago due to hawkish comments. However, a 25 basis point first easing in May is more than priced in.

This week, in advance of the upcoming meeting on January 30-31, Fed officials are not available for comment.

Later this week's data on core inflation and US economic growth may have an impact on the outlook for an early relaxation.

The core personal consumption price index is predicted to fall to an annual 3.0 percent in December, down from 3.2 percent the previous month and the lowest since early 2021. Meanwhile, the gross domestic product is projected to grow at an annualized 2 percent pace in the fourth quarter.

The tendency of recent data to surprise on the high side is one reason why 10-year Treasury rates increased by over 20 basis points last week, closing at 4.13 percent.

The dollar reached a five-week high against a basket of other currencies thanks to this change. The euro remained stuck at US$1.0893 (RM5.14) after falling 0.5% for the week, while it was up at ¥148.13 after surging 2.2% the previous week.

Because of all of this, non-yielding gold becomes unappealing at US$2,028 an ounce.

Concerns about demand around the world have so far outweighed the risk to supply posed by Middle East conflicts in the oil market.

While US crude for January fell 9 cents to US$73.16 per barrel, Brent was down 23 cents at US$78.33 a barrel.

Source - Reuters

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Central banks loom as Japan leads Asia's stock market rises.