Japan leads Asia stocks higher, central banks loom
Pedestrians walk past an electronic board displaying Nikkei share average, outside a brokerage in Tokyo, Japan, Oct 31, 2023. REUTERS/Kim Kyung-Hoon/File photo
SYDNEY —Asian shares followed Tokyo higher on Monday as AI hype helped the tech sector ahead of a week brimming with central bank meetings, major economic data and corporate earnings.
Chip stocks have been on a roll since Taiwan Semiconductor Manufacturing (TSMC) upgraded its profit outlook last week on booming demand for high-end chips used in AI applications, sending the Nikkei to a fresh 34-year peak. The index climbed another 0.8 percent early on Monday, to be up 8.3 percent so far in January.
Chipmakers, including Nvidia and Advanced MicroDevices, were among the beneficiaries of the AI-driven rally.
That should sharpen attention on results from Intel and IBM this week, along with Tesla, Netflix, Lockheed Martin and a host of others.
S&P 500 futures edged up 0.1 percent, after notching a record close on Friday, while Nasdaq futures added 0.3 percent.
READ: S&P 500 ends near record high as AI optimism lifts chipmakers
MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent, after taking a drubbing last week.
The index has been pressured by weakness in China’s markets, which hit five-year lows last week and sparked speculation state funds were having to support stocks.
Beijing still seems reluctant to deliver aggressive stimulus and the central bank is expected to again skip on a rate cut in its market operations on Monday.
The Bank of Japan is also expected to keep policy super-easy at a meeting on Tuesday, helped by a second month of slowdown in consumer prices.
READ: BOJ will end negative interest rates in 2024, economists say
The general assumption among analysts is the central bank will want to see if the spring wage rounds deliver strong growth before deciding whether to nudge toward tightening.
“Drawing on the first ‘shunto’ results released mid-March and the April branch managers’ meeting, the BoJ will be able to confirm the sustainability of wages and exit negative interest rate policy in April,” wrote analysts at Barclays in a note.
“Thereafter, we expect gradual rate hikes from H2 24, but policy rates should remain well below neutral.”
ECB in no rush
The European Central Bank (ECB) meets on Thursday and is considered certain to hold steady, given recent hawkish commentary from top officials.
READ: ECB has tough job to fight rate cut bets as inflation falls
“A March cut still makes sense, but the push back from ECB officials has been potent in recent days, making a June cut more likely,” said Giovanni Zanni, an economist at NatWest Markets.
“Data have continued to support our long-held view that the ECB probably went too far in its rate rising cycle,” he added. “We believe that a delay will likely imply the need for a bolder first move, with a 50bp cut more likely than a 25bp one.”
Futures have priced in 40 basis points of easing by June, with a first cut in May implied at a 76-percent chance.
Central banks in Canada and Norway also meet this week and no change to rates is expected.
Hawkish talk has also seen markets scale back the probability of a March cut from the Federal Reserve to 49 percent, from around 75 percent a couple of weeks ago. Yet, a first easing of 25 basis points in May is more than fully priced.
Fed officials are in blackout this week ahead of the next meeting on Jan. 30-31.
Prospects for an early easing could be affected by data on U.S. economic growth and core inflation due later this week.
Currencies, oil prices
Gross domestic product is seen running at an annualized 2 percent pace in the fourth quarter, while the core personal consumption price index is seen slowing to an annual 3 percent in December, down from 3.2 percent the previous month and the lowest since early 2021.
Recent data has tended to surprise on the high side, one reason yields on 10-year Treasuries climbed almost 20 basis points last week to last stand at 4.13 percent.
That shift underpinned the dollar, which hit a five-week high on a basket of currencies. It was up at 148.13 yen, having jumped 2.2 percent last week, while the euro was idling at $1.0893 after easing 0.5% for the week.
All of this left non-yielding gold looking unattractive at $2,028 an ounce.
In the oil market, worries about global demand has so far offset the threat to supply from tensions in the Middle East.
Brent was off 23 cents at $78.33 a barrel, while U.S. crude for January eased 9 cents to $73.16 per barrel.
