Global Stocks During U.S. Holiday

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Global stocks remained muted on Monday, as U.S. markets were closed for the Presidents Day holiday. Investors are continuing to monitor the outlook for inflation and interest rates, along with corporate earnings and developments in artificial intelligence, which have been driving significant gains in the tech sector recently.

U.S. Futures Trading Slightly Up

Despite the quiet session, U.S. stock-index futures were still trading, showing a slight uptick. Contracts tracking the Dow Jones Industrial Average were up 20 points, or 0.1%, after the index experienced a 145-point drop last Friday. S&P 500 futures saw a minor increase of less than 0.1%, while contracts for the Nasdaq gained 0.2%.

Economic Data Calendar Sparse

The economic data calendar is expected to be light over the coming days, with investors eagerly waiting for the Federal Reserve’s preferred measure of inflation next week. However, there are potential catalysts that could impact the discussion on future interest rate decisions.

Market Reactions and Global Trends

Analyst Susannah Streeter of Hargreaves Lansdown noted that investor optimism for swift interest rate cuts by the Federal Reserve has waned, contributing to a more risk-averse sentiment in the market. She pointed to Friday’s release of producer price index (PPI) inflation data, which surpassed expectations and put pressure on stocks. The cautious tone from Wall Street also resonated in London and Asia.

Regional Market Movements

In Europe, London’s FTSE 100 declined by 0.1%, while the Paris CAC 40 and Frankfurt’s DAX dropped by 0.5% and 0.3%, respectively. The pan-European Stoxx 600 saw a decrease of 0.2%.

In Asia, Hong Kong’s Hang Seng Index fell by 1.1%, Tokyo’s Nikkei 225 closed slightly below flat, and the Shanghai Composite experienced a rare increase of 1.6% as mainland Chinese markets reopened following the Lunar New Year holiday.

Shifting expectations for when and by how much the Fed will cut rates this year from a generational peak remains a core narrative for markets amid mixed signals on inflation and the health of the economy. Wednesday will see minutes released from the January meeting of the Fed’s monetary policy committee, and a spate of officials from the central bank will deliver remarks this week—all of which may shift the needle on rate expectations. Investors will be watching closely for signs of how Fed officials view the battle against inflation and how soon it may be appropriate to lower borrowing costs.

Quiet Week with Building Anticipation

“It’s a U.S. holiday today so expect a quiet start to what is a quiet week for data,” said Jim Reid, a strategist at Deutsche Bank. “It’s a reflection of the world we live in that the most important event of the week may be Nvidia’s earnings on Wednesday. It is now the fourth largest company in the world and the best performer in the S&P 500 so far this year, so this will be very important for sentiment.”

Indeed, chip maker Nvidia’s earnings midweek are likely to be key for the technology stocks exposed to AI—a key investing trend over the past year—and the wider market at large. Nvidia and other tech giants have seen their stocks soar in recent months amid optimism over AI, propelling the wider S&P 500 higher.

Tech Driving Market Durability

“The stock market has been incredibly durable this year even with Fed rate cuts getting priced out and valuations being historically stretched. However, it’s crucial to note that the rally is driven by a handful of tech companies with exposure to artificial intelligence, and that many ‘older economy’ stocks have not participated,” said Marios Hadjikyriacos, an analyst at broker XM.

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