A look at the day ahead in the US and global markets by Mike Dolan
While maintaining a persistent, if uncertain, threat of new tariffs, US President Donald Trump this week quickly shifted his focus to technology and artificial intelligence, stoking the red-hot sector that is about to post its latest round of earnings.
Trump on Tuesday announced an investment of up to $500 billion in the private sector to fund artificial intelligence infrastructure, aiming to surpass rival countries in mission-critical technology.
The newly sworn-in president said ChatGPT maker 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 hours ahead of Wednesday’s bell.
With technology buzzing again, streaming giant Netflix burst 14% higher in premarket trading on Wednesday after its latest earnings update revealed a record 18.9 million new subscribers during the holiday quarter and plans for price hikes.
The renewed focus on technology comes as the Nasdaq has marginally underperformed the broader S&P500 so far this year, with even Apple under a cloud on Tuesday despite solid gains in the Wall Street stock index. Apple’s withdrawal allowed AI chip darling Nvidia to regain 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 pointing to total annual earnings growth of nearly 11% over the past quarter, stock futures rose sharply ahead of the open.
The S&P500 closed above 6,000 points for the first time this year on Tuesday – less than 1% from record highs.
Despite the AI ​​tilt, Trump continued to rattle the tariff saber overnight — without necessarily providing much additional clarity on exactly where or when they would come.
Trump vowed to hit the “very, very bad” European Union with tariffs and said his administration was also discussing a punitive 10% tariff on Chinese imports – blaming the fentanyl trade from China to the US via Mexico and Canada.
However, currency swings around the threats appeared to have calmed down, with traders taking a wait-and-see approach and assuming that any movement would only occur after the countries in question responded to Trump’s key concerns.
The dollar index fell to its lowest level in two weeks, with the euro hitting its best level of the year so far, even as European Central Bank officials speaking in Davos backed more interest rate cuts this year.
Although exchange rate movements appeared large this week, implied currency volatility gauges have actually declined. The three-month dollar/yen ‘full’ fell to the lowest level since July on Wednesday, with the latest interest rate hike from the Bank of Japan now appearing to be baked in. Equivalent euro-vol measures are the lowest since November, and even the British pound measures have returned to their lowest levels since July. two-week lows.
European shares also fended off Trump’s trade threats, with the STOXX600 index hitting a record high on Wednesday. Addidas also helped the German DAX to a new record and the sportswear brand rose 6% after its latest results.
The almost 6% rise in benchmark Eurozone stock indexes this year is twice that of the S&P500 in dollar terms – with Bank of America’s latest global fund manager claiming that allocations to European shares this month will see the were the second largest allocation in a quarter century.
However, Chinese shares were less enthusiastic about their return to the tariff firing line and fell about 1% on Wednesday, with the yuan also falling.
Despite the pre-inauguration phone call between Trump and Chinese President XI Jinping last week, Trump appears to have enough courage to publicly resume the trade war he started during his first term.
Back in the fixed income markets, the nervous start to the new year appears to have calmed down considerably.
A combination of lower oil prices – partly due to Trump’s plans to ramp up domestic oil drilling – and the lack of immediate rate hikes has helped push Treasury yields back to their levels at the turn of the year.
After a significant relief from U.S. inflation data last week, Canada underlined optimism about consumer prices on Tuesday with an unexpectedly big drop in monthly prices, keeping annual inflation below the Bank of Canada’s 2% target last month.
Elsewhere, newly agitated UK government bonds also outperformed this week as news of a big drop in hiring in Britain and robust auction demand for the bonds offset higher government borrowing and returned yields to early-year levels.
Key developments that should give more direction to US markets later on Tuesday:
* Canada Producer price inflation in 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 Christine Lagarde, president of the European Central Bank, Joachim Nagel, president of the Bundesbank, Francois Villeroy de Galhau, chief of the Bank of France, Klaas Knot, head of the Dutch central bank and Valdis Dombrovskis, Commissioner of the European Union
* German Chancellor Olaf Scholz meets French President Emmanuel Macron in Paris
* The US Treasury Department is selling $13 billion worth of 20-year bonds
(By Mike Dolan, editing by William Maclean; mike.dolan@thomsonreuters.com)