Japan equities extend rally as AI hype juiced up tech sector demand

SYDNEY — Japanese shares led US and European futures higher on Monday as artificial intelligence (AI) hype juiced up the tech sector ahead of a week brimming with central bank meetings, major economic data and corporate earnings.

Chip stocks have been on a roll since Taiwan Semiconductor Manufacturing upgraded its profit outlook last week on booming demand for high-end chips used in AI applications.

That helped send the Nikkei up more than 1.5% to a fresh 34year peak and brought gains for January to almost 9%.

Chipmakers, including Nvidia and Advanced Micro Devices, were among the beneficiaries of the AI-driven rally.

That should sharpen attention on results from Intel and IBM this week, along with Tesla, Netflix, Lockheed Martin, and a host of others.

Nasdaq futures extended their rally with gains of 0.6%, while S&P 500 futures firmed 0.2%. EUROSTOXX 50 futures jumped 0.8% and FTSE futures 0.3%.

Yet MSCI’s broadest index of Asia-Pacific shares outside Japan still eased 0.45%, having already taken a drubbing last week.

The index has been pressured by weakness in China’s markets, which hit five-year lows last week and sparked speculation state funds were having to support stocks.

Beijing still seems reluctant to deliver aggressive stimulus with the central bank again skipping on a rate cut in its market operations on Monday.

The Bank of Japan (BoJ) is also expected to keep policy supereasy at a meeting on Tuesday, helped by a second month of slowdown in consumer prices.

The general assumption among analysts is the central bank will want to see if the spring wage rounds deliver strong growth before deciding whether to nudge toward tightening.

“Drawing on the first ‘shunto’ results released mid-March and the April branch managers’ meeting, the BoJ will be able to confirm the sustainability of wages and exit negative interest rate policy in April,” wrote analysts at Barclays in a note.

The European Central Bank (ECB) meets on Thursday and is considered certain to hold steady, given recent hawkish commentary from top officials.

“A March cut still makes sense, but the push back from ECB officials has been potent in recent days, making a June cut more likely,” said Giovanni Zanni, an economist at NatWest Markets.

“Data have continued to support our long-held view that the ECB probably went too far in its rate rising cycle,” he added. “We believe that a delay will likely imply the need for a bolder first move, with a 50-bp cut more likely than a 25-bp one.”

Futures have priced in 40 basis points (bps) of easing by June, with a first cut in May implied at a 76% chance.

Central banks in Canada and Norway also meet this week and no change to rates is expected, though Turkey is thought likely to hike again.

Hawkish talk has also seen markets scale back the probability of a March cut from the US Federal Reserve to 49%, from around 75% a couple of weeks ago. Yet, a first easing of 25 bps in May is more than fully priced.

Fed officials are in blackout this week ahead of the next meeting on Jan. 30-31.

Prospects for an early easing could be affected by data on US economic growth and core inflation due later this week. —