Home Forex Tech Stocks Rebound on AI Boom Even as Yields Rise and Dollar Steady

Tech Stocks Rebound on AI Boom Even as Yields Rise and Dollar Steady

by SuperiorInvest
  • Apple and semiconductors reach a new record
  • But Fed repricing caps gains outside tech sector as yields rise
  • Dollar holds firm, pound falls on data, yen held up by verbal intervention

Optimism over AI fuels tech rebound

AI mania returned on Thursday as optimism about a recovery in AI-related demand, as well as the broader tech sector, boosted stock markets. Apple and TSMC were the main catalysts for yesterday’s rally, ending a two-day slide on Wall Street and lifting sentiment ahead of Big Tech earnings due next week.

Apple (NASDAQ 🙂) shares posted their biggest daily rise (+3.3%) since last May after an upgrade from Bank of America analysts. Meanwhile, chip giant Taiwan Semiconductor Manufacturing Company saw its shares in both New York and Taiwan after it reported better-than-expected fourth-quarter results and forecast strong revenue growth into 2024.

Nvidia (NASDAQ 🙂 and Meta (NASDAQ 🙂) were the other big beneficiaries of renewed optimism around artificial intelligence, all of which helped the Nasdaq 100 advance 1.5% to close at a new peak. The broader index follows some distance from its all-time high, but the S&P 500 (+0.9%) was close to setting a new record.

Stocks in Europe and Asia followed Wall Street’s gains on Friday, although indices in Hong Kong and China bucked the trend amid continued worries about China’s property market and fears about a crackdown on the financial sector.

Swim against the current?

The rally in global stocks comes even as investors have begun to reduce some of their very dovish bets on the outlook for interest rates in the United States and elsewhere. In the bigger picture, most stock indices remain within their recent ranges amid a series of uncertainties weighing on the outlook and preventing authorities from charting a clear path for interest rates.

However, this latest rally shows that technology and AI stocks have the ability to decouple from the usual risk factors that drive markets and their defensive nature will likely be tested if bets on rate cuts continue to be trimmed. the Fed.

Investors now see a little more than 50% chance that the Federal Reserve will cut rates in March, compared to more than 75% last week. This latest price revision comes after US jobless claims fell to their lowest level in more than a year last week, suggesting a still tight labor market. Additionally, Federal Reserve officials continue to cast doubt on the prospect of an imminent dovish turn, with Atlanta Fed President Raphael Bostic being the latest to warn Thursday against premature rate cuts.

Euro recovers, but pound falls as dollar remains at one-month highs

U.S. and European bond yields have been slowly rising all week as policymakers at the Federal Reserve and the European Central Bank repeatedly pushed back the markets’ timeline for how soon rates would be cut. It is currently trading near one-month highs, lifting the US dollar to similar highs against a basket of currencies.

But after falling sharply at the start of the week, the euro managed to stabilize around $1.0880 and the Australian dollar also recovered a bit. However, sterling, which was boosted midweek by an interesting UK CPI report, came under pressure on Friday following a much worse-than-expected drop in retail sales in December. The weak data raises the chances that the British economy will contract in the final quarter of 2023, entering a technical recession.

Japanese Suzuki comes to the rescue of the yen

Investors also digested Japan’s latest CPI figures today. Consumer prices rose 2.3% year-on-year in December, up from 2.5% the previous month. While the data was in line with expectations, the yen slid immediately afterwards as doubts grew that the Bank of Japan could raise interest rates in the near term. This prompted some verbal intervention from Japan’s Finance Minister Shunichi Suzuki against any quick measures, causing a reversal in the yen’s decline.

The dollar last traded slightly around 147.90 yen, having risen to 148.80 yen shortly after the CPI data was released.

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