Mike Dolan's look at the day ahead in US and global markets
Keeping a constant, if uncertain, threat of new tariffs at bay, US President Donald Trump quickly turned his attention to technology and artificial intelligence this week – exciting the red-hot sector which is set to report its latest round of earnings.
Trump on Tuesday announced 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.
Softbank shares rose more than 10% in Tokyo trading, while Oracle rose 9% in pre-hours on Wednesday.
With the fizz back in tech, streaming giant Netflix crashed 14% higher in premarket trade on Wednesday after its latest earnings update revealed 18.9 million new subscribers over the holiday quarter and plans for record price hikes.
The renewed technology focus comes as the Nasdaq has slightly underperformed the broader S&P500 so far this year, with even Apple under a cloud on Tuesday despite rapid gains in the Wall Street stock index. Apple's retreat 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 diary on Wednesday, and the top 10% of S&P500 companies pointing to overall annual profit growth of nearly 11% over the past quarter, stock futures were up smartly before the 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 bias, Trump continued to rattle off the saber tariff overnight — without necessarily providing much additional clarity on exactly where or when they might be coming.
Trump vowed to hit the European Union “very, very badly” with tariffs and said his administration was also discussing a punitive 10% duty on Chinese imports – blaming the trafficking of fentanyl from China to the US via Mexico and Canada.
Currency gyrations around the threats appeared to have calmed down, however, with traders adopting a 'wait and see' mode and assuming that any moves will only happen once the countries involved have responded to key concerns Trump.
The dollar index slipped to its lowest in two weeks, with the euro clocking its best levels of the year so far – even as European Central Bank officials speaking in Davos lagged behind more of interest rate cuts this year.
While exchange rate swings have loomed large this week, implied currency volatility gauges have actually retreated. Dollar/yen 'volume' fell to a three-month low since July on Wednesday with the Bank of Japan's latest interest rate hike now in sight. two week lows.
European shares 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 nearly 6% rise in benchmark eurozone stock indexes this year is twice as much as the S&P500 in dollar terms – with global fund manager Bank of America's latest claim allocations to European stocks this month were their second biggest in a quarter of a century.
Chinese stocks were less enthusiastic about being back in the tariff firing line, however, and fell back around 1% on Wednesday – the yuan slipping too.
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 that started in his first term.
Back in fixed income markets, the shaky start to the new year appears to have calmed down considerably.
A combination of lower oil prices – partly due to Trump's plans to increase domestic drilling – and the lack of immediate tariff hikes has helped cost Treasury yields back to the levels seen at the turn of the year.
After a significant release from US inflation data last week, Canada underscored the optimism on consumer prices on Tuesday with an unexpectedly large drop in monthly prices that kept annual inflation below the Bank of Canada's 2% target last month.
Elsewhere, recently jittery British gilts also outperformed this week as news of a sharp drop in UK hiring and robust demand for the bond auction offset higher public borrowing and yield pullbacks to where they were at the beginning of the year.
Key developments that should give US markets more direction later on Tuesday:
* December Canadian producer price inflation
* 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 European Central Bank President Christine Lagarde, Bundesbank President Joachim Nagel, Bank of France chief Francois Villeroy de Galhau, Dutch central bank chief Klaas Knot and European Union commissioner 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)
