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Key takeaways

New record highs for stock markets in the US, Europe and Japan last week, were spurred on by investor enthusiasm for Artificial Intelligence (AI), offsetting concerns around ongoing indications from central banks that they will not be rushing to cut interest rates.

  • The importance of the shares of semiconductor heavyweight Nvidia is evidenced by its weighting in key stock market indices, but also its importance within AI. After the close of stock-market trading last Wednesday, the chipmaker reported strong quarterly revenue and earnings that exceeded expectations, topping Wall Street estimates. The company also increased its full-year guidance based on robust demand for its chips, which are used in artificial intelligence applications. Overall, the technology sector is seeing strong growth in earnings which continues to fuel the share-price rally in the sector.
  • Turning to central bank policy, there were more indications from major central banks that they are not rushing to cut interest rates. The minutes from the last meeting of the US central bank (the Fed) reiterated that it is seeing progress in reducing inflation, but wants more evidence that this will be sustained. Speeches by Fed officials suggest the bank is wary about moving too quickly to cut rates with recently released stronger economic activity data providing the Fed with the flexibility to remain on the sidelines. A similar sentiment was echoed by the European Central Bank, with the minutes from its last meeting indicating a wariness of cutting rates too early while the labour market remains robust. This is a reminder that there is still some way to go in terms of actually seeing rate cuts with market expectations becoming more tempered as a result.
  • Elsewhere, in China the country’s domestic banks cut their mortgage reference rate by a record 0.25% to 3.95%. The cut was aimed as a signal to the market that the country is increasing support for its flailing property sector. With confidence amongst property buyers depressed, though it is unclear whether the support will be enough. Home prices continued to fall in January. Meanwhile, total domestic tourism spending over the Lunar New Year holiday period looks to have surged relative to the 2023 holiday period, however, 2023 was a low base as it was impacted by the COVID lockdowns.

Weekly market moves

  • A better-than-expected earnings report from semiconductor manufacturer Nvidia drove a rally in global shares, with new record highs in the US, Europe and Japan. While the rally was heavily concentrated in the technology sector, its effects were also felt in stock markets more broadly.

  • Bond yields fell marginally (bond prices, which move in the opposite direction to yields, rose), the price of gold increased, and the oil price weakened.

What to look out for this week

  • The focus this week will be on a number of inflation data releases including in the US, Europe and Japan.

  • Otherwise, several economic activity indicators will be released for key economies, including PMI gauges in China, which will be of particular interest since they take into account the impact of the Lunar New Year holiday.

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