Home Forex Yen awaits BoJ decision, stocks hit new records

Yen awaits BoJ decision, stocks hit new records

by SuperiorInvest
  • Stock markets reach new heights on strong US data and AI enthusiasm
  • Risk sentiment keeps dollar on the defensive even as Fed cut bets fade
  • Bank of Japan meets Tuesday; unlikely to rescue battered yen

US stocks set another record

Wall Street stocks hit a new all-time high last week as enthusiasm around artificial intelligence accelerated and another round of strong economic data bolstered hopes that the U.S. economy can avoid a recession.

Companies with direct exposure to artificial intelligence like Nvidia (NASDAQ 🙂 led the rally. Investors Increasingly View These Stocks as ‘Bulletproof’ because even if the global economy loses steam, demand for AI products will remain high, shielding corporate profits from any macroeconomic headwinds.

Another element behind the dizzying market rally was the Michigan consumer survey, where inflation expectations decreased while consumer confidence improved significantly, painting an optimistic picture of the US economy. The S&P 500 gained 1.2% to eclipse its previous all-time high, set in early 2022.

An interesting twist is that rising bond yields did not slow down the stock market. Stocks hit new records even as investors unwound some bets on quick rate cuts by the Federal Reserve, and the implied probability of a cut in March fell to 43%, down from nearly 90% last month.

Therefore, good news about the economy also turned out to be positive for stocks, showing that stocks can withstand higher bond yields, if rising yields are driven by healthy factors.

The dollar remains firm, gold trades strongly

On the currency front, the dollar was unable to capitalize on encouraging data from the United States and the Fed’s fading bets on a rate cut. It appears that the euphoria in riskier assets dampened demand for safe haven instruments like the dollar, negating the momentum of the interest rate channel.

The next big event for the dollar and stocks will be the release of US GDP data for the fourth quarter on Thursday.
where there is some room for a bullish surprise considering that the Atlanta Fed’s GDPNow model estimate is much higher than the official forecasts.

Gold prices have struggled so far this year, losing around 2% over the past three weeks as a resurgence in US yields and a firmer dollar dominated safe-haven flows stemming from geopolitics. A better-than-expected US GDP figure on Thursday could keep the precious metal under pressure, focusing attention on recent lows near $2,000.

Chinese stocks sink; the next decision of the Bank of Japan

In China, the central bank kept rates unchanged today, despite growing pressure to stimulate an economy that is battling deflation. The decision suggests that Chinese authorities want to avoid further increases in private debt, which is prudent from a financial stability perspective, but suggests that growth could remain stuck at a slow speed for some time. This helps explain why local stocks plunged, with Hong Kong stocks hitting their lowest levels since November 2022.

Looking ahead, the Bank of Japan will announce its next decision early on Tuesday. The yen has already lost 5% of its value against the US dollar this year and the Bank of Japan is unlikely to give the battered currency a lifeline.as cooling inflation and a sharp slowdown in wage growth have convinced investors that the central bank will delay its plans to exit negative interest rates.

The rest of the week is equally busy, with decisions from the eurozone and Canadian central banks, a flurry of data releases, as well as corporate earnings from iconic names like Netflix (NASDAQ:), Tesla (NASDAQ:), Intel ( NASDAQ 🙂 and Visa (NYSE :).

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