Asian stocks advance on tech rebound ahead of Fed rate decision

Nikkei

Stocks in Asia advanced to follow Wall Street’s tech-led rebound from a selloff that shook global markets, as focus turns to the Federal Reserve’s rate decision and US mega-cap earnings.

Japanese and Australian shares rose. Most other major markets in the region are closed for Lunar New Year holidays. US equity futures slipped after the S&P 500 rose 0.9% and Nasdaq 100 advanced 1.6% on Tuesday, as Nvidia Corp. rallied 8.9% following the largest one-day value loss in history.

The share gains come after a rough start to the week on concern that a cheap artificial intelligence-model from Chinese startup DeepSeek might make valuations of the technology that has powered the bull market tough to justify. However, a re-evaluation saw the likes of Steve Cohen saying it may be good for the industry. Investors in the region will now be looking toward the Fed decision on rates and the start of the Big Tech reporting season on Wednesday — a key test for AI bulls.

“The dust has settled on DeepSeek and investors seem much more circumspect,” said Kyle Rodda, a senior market analyst at Capital.Com Inc. “We look to earnings and the Fed now — the former being more important because the latter will probably be a nothingburger!”

Fed officials are widely expected to hold borrowing costs steady on Wednesday against a backdrop of healthy demand and stubborn inflation. Bond traders are ratcheting up bullish bets on US Treasuries in hopes that Fed Chair Jerome Powell signals a cut in March is firmly on the table. A survey conducted by 22V Research shows 67% of respondents expect the reaction to the Fed Wednesday to be “mixed/negligible,” 21% said “risk-off” and 12% “risk-on.”

The yield on 10-year Treasuries declined 1 basis point to 4.52%. West Texas Intermediate oil steadied on Wednesday after gaining 0.8% on Tuesday.

“Simply put, the strong US fundamental story of strong growth, elevated inflation, and a more hawkish Fed continues to favor higher US yields and a stronger dollar,” Win Thin, a strategist at Brown Brothers Harriman, wrote in a note.

As for earnings in the US, while profits from the so-called Magnificent Seven behemoths are still rising — and far outpacing the rest of the market — growth is projected to come in at the slowest pace in almost two years.

“The dust is now settling after Monday’s long overdue AI reckoning, and while we still believe in the AI-driven productivity story, investing in this sector going forward may not be as easy as it was over the past two years,” said Emily Bowersock Hill at Bowersock Capital Partners. “We expect investors to be more discerning and selective when it comes to AI investing.”

In Australia, core inflation eased by more than expected in the final three months of 2024. The Australian dollar dropped and the policy-sensitive three-year yield fell 5 basis points on bets that the Reserve Bank may embark on a monetary easing cycle soon.