United States
Wall Street took the day off for Presidents’ Day, but the echoes of Friday’s softer inflation print continued to shape the market narrative heading into the new week.
S&P 500 futures were essentially flat, while Nasdaq 100 futures slipped 0.2% as concerns about AI disruption continued to weigh on the technology sector. Dow futures were similarly unchanged in thin holiday trading.
Friday’s consumer price index reading came in below expectations, reinforcing the case for the Federal Reserve to resume cutting interest rates later this year. Money markets are now fully pricing in a rate reduction by July, with a strong probability of the central bank moving as early as June. That benign inflation backdrop has kept the mood broadly constructive for equities, even as questions mount about which sectors stand to benefit or suffer from rapid advances in artificial intelligence.
Those AI anxieties have become impossible to ignore. JPMorgan strategists urged caution on stocks vulnerable to what they described as AI “cannibalisation”, singling out software, business services and media companies as most at risk. Goldman Sachs, meanwhile, has launched a long-short basket of software stocks designed to capitalise on the divergence between AI winners and losers, a product that has significantly outperformed the broader software index in recent months.
The current US earnings season has provided some reassurance, with companies in the S&P 500 delivering profit growth of around 13%. That underlying resilience is one reason strategists remain broadly positive on American equities, even as sector rotation accelerates.
Traders will be watching closely this week for ADP private payrolls data on Tuesday and the minutes from the Fed’s January meeting on Wednesday, both of which could provide fresh clues on the trajectory of monetary policy.
Europe
European equities finished Monday’s session in a tight range, with the Stoxx 600 ending virtually flat as AI disruption fears savaged parts of the industrial software sector.
Dassault Systèmes bore the brunt of the selling, plunging 10% as investors questioned the long-term impact of artificial intelligence on the company’s business model. Siemens tumbled 6.4% and SAP shed 2% in sympathy, underscoring how quickly sentiment around AI has shifted from opportunity to threat. The number of mentions of AI disruption during management earnings calls has nearly doubled compared with the previous quarter, highlighting just how front-of-mind the issue has become for corporate leaders.
Trading volumes were thin, running about 33% below the 30-day average with US and Chinese markets closed. Among the major bourses, London’s FTSE 100 rose 0.3% and France’s CAC 40 added 0.1%, while Germany’s DAX dipped 0.5%.
Not everything was doom and gloom. Banks continued their strong run, with NatWest Group jumping 4.8% after Citi analysts lifted their price target to a street-high, citing the benefits of a recent wealth management acquisition and improved net interest income forecasts. Telecom and insurance stocks also outperformed on the session.
The Stoxx 600 remains hovering just below last week’s record high, with earnings season delivering generally healthy profit growth but punishing companies that fall short of increasingly demanding expectations.
Australia
Australian shares are poised for a modestly positive start to Tuesday’s session, with ASX 200 futures pointing 15 points higher, or 0.2%, to 8895.
Monday’s session saw the benchmark add 0.2% to 8967.10 as technology stocks staged a sharp rebound from last week’s AI-driven sell-off. WiseTech surged 12.9%, Xero jumped 7.6% and TechnologyOne gained 5.6% as bargain hunters moved back into the sector. Shipbuilder Austal also bounced strongly, rallying 19.5% after Friday’s brutal 23% decline following a cut to earnings guidance.
Those gains were tempered by weakness in the materials sector, with iron ore lingering below $US100 a tonne. Fortescue dropped 4.7%, Rio Tinto fell 4.1% after suspending operations at its Simandou project following a worker fatality, and BHP eased 1.5%.
Earnings season provided plenty of action. JB Hi-Fi jumped 7.5% after smashing profit expectations, while a2 Milk rose 6.8% on an upgraded outlook driven by strong Chinese demand. On the other side of the ledger, Treasury Wine Estates tumbled 5.2% after reporting a first-half loss and scrapping its interim dividend. Qube gained 3.3% following confirmation of an $11.7 billion takeover by a Macquarie Asset Management-led consortium.
Tuesday brings a packed reporting schedule headlined by BHP, Challenger and Seek. The Reserve Bank will also release the minutes from its latest policy meeting at 11.30am AEDT.
Commodities and currencies
Gold retreated 1% to $US4,992 an ounce, slipping below the psychologically significant $US5,000 level as traders booked profits following its recent rally to fresh records.
Oil prices firmed, with Brent crude gaining 1.2% to $US68.59 a barrel and West Texas Intermediate rising 1.3% to $US63.72. Iron ore edged 0.1% higher to $US96.80 a tonne but remains under pressure from rising Chinese port stockpiles and increased supply from major producers.
The Australian dollar was little changed at US70.76 cents, with the greenback broadly steady during the holiday-thinned session. The euro weakened for a fifth consecutive day, while the Japanese yen slipped 0.5%.
Bitcoin dipped 0.6% to $US68,047, extending its losing streak to four consecutive weeks as the cryptocurrency continues to search for direction.
Economic Calendar
AU:
- RBA Minutes 11;30
US:
- ADP Employment 00:15
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
