Asian Shares Advance, Kiwi Falls On Rate Guidance: Markets Wrap

Asian stocks rose in thin holiday trading even as uncertainty over the outlook for AI continued to weigh on global equities.

Breaking three days of losses, the MSCI Asia Pacific Index gained 0.6%, with Japanese shares rising. Trading volumes are expected to be light, with markets in China, Hong Kong and several regional exchanges remaining closed for the Lunar New Year holiday.

Meanwhile, New Zealand’s currency slid as much as 0.6% to 60.12 US cents while the yield on policy-sensitive 2-year notes extended an earlier decline as traders pared expectations on RBNZ rate hikes. Markets priced a roughly three-in-four chance of a hike by October shortly after the decision, down from 90% prior.

Anxiety around artificial intelligence is also a concern in Asia, home to much of the world’s chip development and hardware manufacturing. The upheaval in global equities driven by AI highlights a clash between fears the technology will upend swaths of the economy and doubts that massive spending on it will generate meaningful returns anytime soon.

“The market is still close to record highs, but it may not feel that way to some investors because of the sharp selloffs that seem to derail upswings almost as soon as they begin,” said Chris Larkin at E*Trade from Morgan Stanley. “If that theme persists, it could result in a bumpy road for the market, even if the overall trend is to the upside.”

Investors are also focused on the Federal Reserve’s path for interest rates after strong jobs data and benign inflation readings last week.

Fed Governor Michael Barr said on Tuesday rates should remain steady “for some time,” until officials see more evidence that inflation is heading toward the central bank’s 2% goal. Chicago Fed President Austan Goolsbee, meanwhile, said there was potential for more cuts this year if inflation continued on its path toward that target.

The yield on 10-year Treasuries was little changed at 4.06%. In other corners of the market, precious metals fluctuated with gold edging up and silver a touch weaker. Cryptocurrencies fell with Bitcoin trading below $67,000.

Elsewhere, oil held its losses from the prior session after positive talks between the US and Iran over the OPEC member’s nuclear program, paring the commodity’s risk premium. The Bloomberg Dollar Spot Index edged up 0.1%.

In trade-related news, Japan plans to invest $36 billion in US oil, gas and critical mineral projects, the first tranche of its $550 billion commitment under the agreement it struck with US President Donald Trump.

Still, technology and the impact of AI remained the dominant themes in global markets. The turmoil in stocks unleashed by the artificial-intelligence industry reflects two fears that are increasingly at odds. 

One is that AI is poised to disrupt entire segments of the economy so dramatically that investors are dumping the stocks of any company seen at the slightest risk of being displaced by the technology. 

The other is a deep skepticism that the hundreds of billions of dollars that tech giants like Amazon.com Inc., Meta Platforms Inc., Microsoft Corp. and Alphabet Inc. are pouring into AI every year will deliver big payoffs anytime soon. 

“A few months ago, the market debated whether AI was real,” said Jean Boivin at BlackRock Investment Institute. “Today, it’s seen as an active threat to business models. We believe the hunt to sort the winners and losers reinforces AI’s massive buildout — and the borrowing spree to finance it.”

Corporate News:

• Warner Bros. agreed on Tuesday to reopen negotiations with Paramount after receiving a revised proposal last week that sweetened some of its terms.
• Berkshire Hathaway Inc. slashed its stake in Amazon.com Inc. by more than 75% in the fourth quarter, while also building a stake in the New York Times Co.
• National Australia Bank Ltd.’s profit climbed in the first quarter amid business banking growth and strength in home lending.
• Apple Inc. is accelerating development of three new wearable devices as part of a shift toward artificial intelligence-powered hardware.
• Meta Platforms Inc. has agreed to deploy “millions” of Nvidia Corp. processors over the next few years, tightening an already close relationship between two of the biggest companies in the artificial intelligence industry.
• Palo Alto Networks shares fell 8% in extended trading, after the security software company gave a forecast for adjusted earnings that was weaker than expected for both the third quarter and the full year.

Key Events This Week

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 10:55 a.m. Tokyo time
• Japan’s Topix rose 1.4%
• Australia’s S&P/ASX 200 rose 0.3%
• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1845
• The Japanese yen was little changed at 153.45 per dollar
• The offshore yuan was little changed at 6.8877 per dollar

Cryptocurrencies

• Bitcoin fell 0.9% to $67,039.09
• Ether fell 1.2% to $1,974.82

Bonds

• The yield on 10-year Treasuries was unchanged at 4.06%
• Japan’s 10-year yield declined two basis points to 2.115%
• Australia’s 10-year yield advanced three basis points to 4.71%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold rose 0.2% to $4,885.93 an ounce.

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