Take Five: Near or far, wherever the markets are
A few traders may have a little downtime this week due to the outcome of Japan's snap elections, key U.S. economic data, earnings season and a decline in some tech stocks.
Rae Wee, Lewis Krauskopf and Lucy Raitano from London, Karin Strohecker and Tommy Wilkes in New York, and Rae Wee, in Singapore, will tell you everything about the financial markets.
LANDSLIDE VICTORY
The coalition of Japanese Prime Minister Sanae Takaichi won a historic election over the weekend. This will pave the way for tax cuts and increased military spending to counter China.
Investors responded by sending Japanese shares to record highs on Monday, while super-long bond prices reversed the early weakness. This was an apparent vote in confidence for Takaichi’s "responsible and proactive" fiscal policies.
The yen held steady as traders were hesitant to lower it due to the threat of currency intervention.
Investors say that while voters have given Takaichi an enormous mandate to re-ignite the economy, she does not have much room to run deficits before the pressure on bonds and currency returns.
How she handles her pledge to suspend Japan’s 8% food tax and how she intends to fund this will be a test.
AI SPLITS INTO WINS AND LOSSES
Cisco Systems and Siemens Energy, a German company, both report their earnings on Wednesday.
Barclays has said that the trade "is experiencing extreme dispersion" as a result of the AI boom.
The market is more confident in identifying winners and losers. Stocks in software and data analytics companies that are falling show how sensitive the market is to AI disruption. The stocks have plummeted as traders focused on the threat that increasingly powerful AI models pose.
AI enablers and companies that contribute to the global AI Data Centre build-out have fared better. It is wise to keep your hats on, especially with the threat of a market bubble popping.
3/ DELAYED DATA DUMP
After the government shutdown, which lasted three days, a double dose of major U.S. reports will give investors an accurate view?of the U.S. economy.
According to a survey, the January non-farm payrolls, which is due Wednesday, will show an increase in jobs of around 70,000, as per the poll. Federal Reserve held rates at the same level last month and paused its easing cycle, citing signs of stabilisation on the labour market.
The January Consumer Price Index, which is one of the most closely monitored measures to assess inflation trends, will be released two days later.
Investors are assessing the impact of the newly appointed Fed chair Kevin Warsh who may take over in time for June's Fed meeting. The markets currently see that meeting as the most likely next time to cut rates.
From Munich, with love
On Thursday, the Munich Security Conference will begin. The annual conference, now in its seventh decade saw its most significant - and controversial - meeting in 2025. A series of U.S. declarations set the stage for the tectonic change in international order that is still ongoing today.
Geopolitical issues are hotter than ever - from Iran, to Ukraine, and Greenland. Questions about the future of NATO also loom large.
Sources say that the meeting will go 'beyond the usual scope of the ECB: they are working to open up euro liquidity access to more countries as part of their efforts to boost the role the single currency plays internationally.
Christine Lagarde will most likely make the announcement. She is expected to open a conference roundtable about trade dependences.
5/ Is the time of European banks in the sun over?
European banks were among the top performing stocks in the last 12 months, with a gain of more than 60%, thanks to rising profitability, low defaults on loans, and the influx of cash for shareholders.
Barclays, NatWest and UniCredit in the UK and Italy will report their 2025 earnings soon after BNP Paribas and Deutsche Bank have already reported generally positive numbers. Lloyds and the French lender also increased their profitability targets.
Analysts warn that the good times will not last forever, particularly if European economies begin to slow. Spain's BBVA shares dropped 7% on Thursday, after the bank set aside 19% extra cash to cover loan losses during the fourth quarter compared to a year ago.
Investors are also looking for signs of a willingness to spend excess capital, such as the recent Santander acquisition of U.S. lender Webster Financial.
(source: Reuters)
