Asian stocks and European equity futures advanced to follow Wall Street’s tech-led rebound from a selloff that shook global markets, as focus turns to the Federal Reserve’s rate decision and US mega-cap earnings.
Japanese, Australian and Indian shares rose. Most other major markets in the region, including the Singapore market are closed for Lunar New Year holidays. US contracts were steady after the S&P 500 rose 0.9 per cent and Nasdaq 100 advanced 1.6 per cent on Tuesday, as Nvidia rallied 8.9 per cent following the largest one-day value loss in history.
Shares rebounded after a rough start to the week, sparked by concerns over a cheap artificial intelligence-model from Chinese startup DeepSeek. However, investors like Steve Cohen see the development as a boon for the industry. Focus has shifted to the Fed decision and Big Tech earnings, starting Wednesday.
“The dust has settled on DeepSeek and investors seem much more circumspect,” said Kyle Rodda, a senior market analyst at Capital.Com. “We look to earnings and the Fed now – the former being more important because the latter will probably be a nothing-burger!”
Fed officials are widely expected to hold borrowing costs steady on Wednesday against a backdrop of healthy demand and stubborn inflation. Bond traders are ratcheting up bullish bets on US Treasuries in hopes that Fed Chair Jerome Powell signals a cut in March is firmly on the table. A survey conducted by 22V Research shows 67 per cent of respondents expect the reaction to the Fed Wednesday to be “mixed/negligible,” 21 per cent said “risk-off” and 12 per cent “risk-on.”
The yield on 10-year Treasuries inched lower. West Texas Intermediate oil steadied on Wednesday after gaining 0.8 per cent on Tuesday.
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“Simply put, the strong US fundamental story of strong growth, elevated inflation, and a more hawkish Fed continues to favor higher US yields and a stronger dollar,” Win Thin, a strategist at Brown Brothers Harriman, wrote in a note.
In Japan, the benchmark repurchase-agreement rate surged the most in 16 months, indicating that bond crunch has eased. It fell more than 30 basis points in the past two days amid signs that investors rushed to borrow bonds to close out bearish positions on these securities.
As for earnings in the US, while profits from the so-called Magnificent Seven behemoths are still rising – and far outpacing the rest of the market – growth is projected to come in at the slowest pace in almost two years.
“While we still believe in the AI-driven productivity story, investing in this sector going forward may not be as easy as it was over the past two years,” said Emily Bowersock Hill at Bowersock Capital Partners. “We expect investors to be more discerning and selective when it comes to AI investing.”
In Australia, core inflation eased by more than expected in the final three months of 2024. The Australian dollar dropped and the policy-sensitive three-year yield fell 5 basis points on bets that the Reserve Bank may embark on a monetary easing cycle soon.
In corporate news, Sony Group named President Hiroki Totoki as CEO, effective April 1. The company hit an intraday record and was the largest contributor to the gains in the Topix index on Wednesday, as software and gaming stocks rose.
Apple has been secretly working with SpaceX and T-Mobile US to add support for the Starlink network in its latest iPhone software, according to people with knowledge of the matter. BLOOMBERG
