Investors in the tech sector experienced a surge of optimism this week, primarily driven by significant announcements and emerging trends in artificial intelligence (AI) that have the potential to reshape business practices and market dynamics. One of the major factors contributing to this positive sentiment was Microsoft’s disclosure of plans to invest $80 billion in data centres, an announcement that propelled its stock up by 1.4% on the heels of the news.
Further enhancing the AI narrative, Foxconn reported a staggering 42% increase in its December sales, a rise attributed to growing AI-driven demand. This news had a ripple effect, boosting shares of Micron by 10% in the US market, while Foxconn’s stock rose by 3% in Taiwan. Qualcomm also entered the spotlight with the introduction of new, cost-effective chips priced at $600, designed to support personal computers capable of running advanced AI software. Qualcomm’s stock increased by 1.28% following this announcement.
In a notable display of market strength, Nvidia’s shares surged by 3.43% prior to CEO Jensen Huang’s anticipated keynote address at the Consumer Electronics Show (CES), achieving a fresh record high. Analysts suggest that the momentum behind these AI enablers indicates that the initial fears of the AI rally fading away are unfounded. However, discussions this year are expected to transition from speculative hype to a focus on tangible applications and the return on substantial investments in AI technologies. The forecast indicates that, moving into 2025, sectors providing AI technology—such as chip manufacturers and equipment suppliers—will likely attract greater investor interest as businesses implement AI solutions into their daily operations.
On broader market movements, the S&P 500 index opened the week with a 0.55% uptick, alongside a notable gain of over 1% for the tech-dominated Nasdaq 100. Contrastingly, the Dow Jones Industrial Average showed a slight decline, weighed down by a spike in the 10-year yield past 4.60%, and a rise in the 30-year yield to 4.86%—the highest level since November 2023. This trend sparked speculation about the Federal Reserve's potential approach to interest rate adjustments, with indications that it may adopt a cautious stance due to concerns that previous measures could inadvertently revive inflation, especially in light of Donald Trump’s economic policies.
The US dollar faced challenges in capitalizing on higher yields as reports indicated that Trump's policies might not be as stringent as previously anticipated. Trump promptly dismissed the claims, leading to a rebound in the dollar’s value. The USD/CAD exchange rate experienced fluctuations attributable to Canadian Prime Minister Justin Trudeau's resignation, in tandem with an upswing in US crude prices to approximately $75 per barrel.
Turning towards foreign exchange markets, major currencies saw gains against a weakened US dollar. The euro, for instance, rebounded beyond the 1.04 level after previously plunging to 1.0224 at the beginning of the year. The British pound also rose back above the 1.25 mark against the dollar.
In Europe, the first day of 2025 marked the cessation of gas flows from Russia to Europe through Ukraine. This momentous event has been met with increasing concern as winter temperatures drop and European gas reserves diminish more rapidly than usual. As a result, natural gas futures in Europe soared by 30% notably in the final weeks of December. Although prices have not yet reached highs seen at the start of the war in Ukraine, forecasts are cautiously optimistic; analysts view recent price dips as opportunities to reinforce long positions. The only major disruptor to this upward trajectory could be the hope for a renewal of gas contracts, or demand reductions from China, which began the year with its weakest performance since 2016.
As energy prices rise, they are beginning to exert pressure on inflation figures in Europe. Germany’s inflation rate surged to 2.9% in December from 2.4% in the previous month. Anticipation surrounds the release of the Eurozone’s overall Consumer Price Index (CPI), which is also expected to reflect upward pressure. For the European Central Bank (ECB), these inflationary pressures complicate efforts to support faltering economies through aggressive interest rate cuts, a scenario that could negatively impact stock valuations while potentially bolstering the euro's valuation.
Eyes are now set on the US jobs report, with markets expecting insights that will influence Federal Reserve policy expectations. Despite a slowing jobs market, the US economy managed to add approximately 180,000 new nonfarm jobs on average each month over the past year, suggesting that the anticipated aggressive Fed cuts may not materialise. Activity on Fed fund futures indicates that the next interest rate cut may not occur until May, and softer job figures could further quell any hawkish sentiment, potentially resulting in a weaker US dollar and gains for other currencies.
Source: Noah Wire Services