Asian Equities Surge on AI Hopes as Dollar Holds Near 3-Month Peak
Asian stocks experienced an uptick on Monday as investors assessed the previous week’s substantial earnings from megacap companies, which highlighted considerable investment in artificial intelligence. Meanwhile, the dollar remained close to a three-month peak following assertive remarks from Federal Reserve officials. Gold prices declined, moving further away from the record high it maintained for much of the previous month, while oil prices increased following Opec+’s decision to refrain from production increases in the first quarter of next year, alleviating concerns about a potential supply surplus. Investors remain attentive to the events from last week, particularly the central bank meetings and the US-China agreement on a year-long trade truce that aligned with broad expectations. However, uncertainties persist regarding the longevity of the truce.
MSCI’s broadest index of Asia-Pacific shares outside Japan increased by 0.2 per cent to 726.98, remaining close to the 4-1/2-year high it reached last week. The index has risen over 27 per cent this year, positioning itself for its strongest performance since 2017. The markets in Japan are currently closed for a holiday, leading to a lack of cash Treasuries trading and consequently subdued activity during the Asian trading hours. A group of Federal Reserve bank presidents on Friday expressed their unease regarding the US central bank’s choice to lower interest rates, while prominent Fed Governor Christopher Waller advocated for further policy easing to support a faltering labor market. After the monetary policy meeting in October, Fed Chair Jerome Powell remarked that an interest rate cut at the upcoming December meeting was “not a foregone conclusion.”
Investors had anticipated that move to be nearly finalized. “We continue to think that the motivation for the rate cuts is consistent with our premise for further dollar downside: the US economy will not outperform to the same degree as it did before,” said strategists in a note. “That will lead to a weaker dollar over time given its strong starting point.” Traders are currently estimating a 68 per cent likelihood of a rate cut in December, a decrease from the near certainty observed last week prior to the Fed meeting, during which the central bank reduced rates by 25 basis points as anticipated. The dollar has consequently strengthened. The euro was last valued at $1.1524, marking a three-month low. Sterling declined by 0.27 percent to $1.3134, while the yen stood at 154.175 per US dollar, approaching its lowest level since mid-February. As the US government shutdown is poised to continue this week, there will be a lack of data regarding job openings and nonfarm payrolls. The US shutdown, which commenced on October 1, has now become the second-longest in history, trailing only the 2018-2019 shutdown that endured for 35 days.
“The focus will be on the ADP employment report and the employment component within the ISM PMIs to assess the health of the US labour market,” stated Tony Sycamore. Following a varied set of earnings from major companies, which indicated investors’ eagerness for returns on significant investments in AI infrastructure, attention will now shift to the technology firms set to report this week. Enthusiasm surrounding AI has propelled global stock markets, yet investors remain cautious about the possibility of excessive optimism linked to this trend and are keen for proof that AI investments are yielding returns. Semiconductor firms Advanced Micro Devices, Qualcomm, and data analytics company Palantir Technologies are set to announce their reports. Next week, reports are expected from other companies, including McDonald’s and Uber. In commodities, gold experienced a decline of 0.4 per cent, trading at $3,985.35 per ounce. Brent crude futures increased by 0.49 percent, reaching $65.10 a barrel, whereas US West Texas Intermediate crude was priced at $61.33 a barrel, reflecting a rise of 0.61 percent.
