A look at the day ahead in US and global markets by Mike Dolan
Keeping a persistent, if uncertain, threat of new tariffs, US President Donald Trump quickly shifted his focus to technology and artificial intelligence this week – exciting the red sector that is about to report its latest return of earnings.
Trump on Tuesday announced a private sector investment of up to $500 billion to fund infrastructure for artificial intelligence, with the goal of outpacing rival nations in the business-critical technology.
The newly sworn-in president said ChatGPT creator OpenAI, SoftBank and Oracle are planning a joint venture called Stargate, which he said will build data centers and create more than 100,000 jobs in the United States.
Shares of Softbank rose more than 10% in Tokyo trading, while Oracle rose 9% outside the hours before the bell on Wednesday.
With the fizz back in tech, streaming giant Netflix burst 14% higher in premarket trading Wednesday after its latest earnings update revealed a record 18.9 million new subscribers during the quarter of holidays and plans to increase prices.
The renewed tech focus comes as the Nasdaq has marginally underperformed the broader S&P500 so far this year, with even Apple under a cloud on Tuesday, despite the Wall Street stock index. Apple’s withdrawal has allowed AI-chip darling Nvidia to reclaim the top spot as America’s most valuable company.
With some big industrial names at the top of the corporate agenda on Wednesday, and the top 10% of S&P500 companies reporting overall annual profit growth of nearly 11% through the latest quarter, stock futures they were smart before opening.
The S&P500 closed above the 6,000 mark on Tuesday for the first time this year – less than 1% from record highs.
Despite the AI tilt, Trump continued to rattle the tariff saber overnight — without necessarily giving much additional clarity on exactly where or when they might come.
Trump vowed to hit the European Union “very, very bad” with tariffs and said his administration was also discussing a punitive 10% tariff on Chinese imports – blaming fentanyl trafficking from China to the United States via Mexico and Canada.
Currency rounds around the threats appear to have calmed down, however, with traders adopting a “wait and see” mode and assuming that any move will happen only after the countries in question respond to Trump’s main concerns.
The dollar index fell to its lowest in two weeks, with the euro closing at its best levels of the year so far – even as European Central Bank officials speaking in Davos lined up behind more interest rate cuts this year.
Although exchange rate swings looked large this week, implied currency volatility gauges have actually declined. The three-month dollar/yen “vol” fell to its lowest since July on Wednesday with the Bank of Japan’s latest interest rate hike now in sight. Euro vol equivalent measures are the lowest since November, and sterling measures are also back to two-week lows.
European stocks also shrugged off Trump’s trade threats, with the STOXX600 index hitting a record high on Wednesday. Addidas also helped Germany’s DAX to a new record and the sportswear brand jumped 6% after its latest results.
The near 6% gain in the eurozone share index this year is double that of the S&P500 in dollar terms – with the latest global fund manager Bank of America saying the allocations to European stocks this month were their second largest allocation in a quarter of a century.
Chinese stocks were less enthusiastic about being back in the tariff line, however, and fell about 1% on Wednesday – the yuan slipping as well.
Despite the pre-inauguration phone call between Trump and Chinese President XI Jinping last week, Trump seems emboldened enough to publicly resume the trade war he started in his first term.
Back in the fixed income markets, the nervous start of the new year seems to have calmed down considerably.
A combination of lower oil prices — in part due to Trump’s plans to increase domestic drilling — and the lack of immediate rate hikes helped push Treasury yields to levels seen at the end of the year
After significant relief from U.S. inflation data last week, Canada underscored optimism about consumer prices on Tuesday with an unexpectedly large drop in monthly prices that held annual inflation below the Bank of Canada’s 2% target last month.
Elsewhere, recently jittery UK gilts also outperformed this week as news of a big drop in UK hiring and robust bond auction demand offset higher numbers increased public borrowing and pulled yields back to where they were at the beginning of the year.
Key developments that should provide further direction to US markets later Tuesday:
* Canadian producer price inflation for December
* US corporate earnings: Halliburton, Procter & Gamble, Johnson & Johnson, Discover Financial, Kinder Morgan, Steel Dynamics, Abbott Laboratories, Travelers, Amphenol, Ge Vernova, TE Connectivity, Textron, Teledyne
* World Economic Forum in Davos, including the president of the European Central Bank Christine Lagarde, the president of the Bundesbank Joachim Nagel, the head of the Bank of France Francois Villeroy de Galhau, the head of the Dutch central bank Klaas Knot and the commissioner of the European Union Valdis Dombrovskis
* German Chancellor Olaf Scholz meets French President Emmanuel Macron in Paris
* The US Treasury sells $13 billion of 20-year bonds
(By Mike Dolan, Editing by William Maclean; mike.dolan@thomsonreuters.com)
