Semiconductor Stocks Surge to Global PMIs – Unpacking the Week’s Financial Dynamics

In the early days of 2024, while overall market averages show modest changes, the tech sector is making waves. Semiconductor stocks, in particular, are showcasing robust performance, propelled by the increasing importance of AI technology. Here are the standout semiconductor stocks of 2024 so far:

• SMART Global Holdings (SGH): +18.8% YTD
• NVIDIA Corporation (NASDAQ:NVDA): +16.9% YTD
• Marvell Technology (NASDAQ:MRVL): +15.7% YTD
• Advanced Micro Devices (NASDAQ:AMD): +13.4% YTD

Global Economic Outlook

Asia

The Bank of Japan is anticipated to maintain unchanged rates, closely watching signals of wage increases. The central bank’s quarterly outlook will be pivotal in shaping rate and policy decisions. Meanwhile, New Zealand’s CPI is expected to ease, potentially influencing the Reserve Bank of New Zealand’s rate decision.

Europe

The European Central Bank (ECB) is likely to keep rates steady, maintaining a hawkish tone. However, weakness in PMI data might introduce a dose of dovishness, challenging expectations of an imminent rate cut.

US

With inflation slowing, the Federal Reserve is contemplating rate cuts, yet hesitancy persists among some members. Advance GDP data on Thursday will be closely monitored for insights into the economy’s resilience in Q4.

Global Developments

China maintained its interest rates, and tensions in the Middle East escalated as the US conducted air strikes in the Gulf of Aden. Equities experienced a dip but rebounded to set a new all-time high for the S&P 500, although indicators suggest underlying weakness.

Market Trends and Currency Movements

Equities remain in a bullish trend, reaching new highs, while bonds reversed the previous week’s rally. The US Dollar continued its upward trend, supported by rising yields. Precious metals struggled, with gold falling to $2,029, and silver closing at $22.62.

What Lies Ahead

The upcoming week promises a flurry of activity. Approximately 100 S&P 500 companies will report Q4 earnings, with a spotlight on key players like Netflix and Tesla. Central banks globally, including the People’s Bank of China, Bank of Japan, Bank of Canada, and the European Central Bank, will announce interest rate decisions. Crucial macroeconomic data, such as EU Consumer Confidence and Global Flash PMI, will provide further insights.

Earnings and Corporate Outlook

US Q4 earnings have been a mixed bag, with notable reports from Goldman Sachs, Morgan Stanley, Schlumberger, and others. TSMC’s positive outlook and partnership with Apple fuelled the tech sector, while Apple faced early challenges but received a positive upgrade. US Retail Sales beat expectations, spiking by 0.6%.

The Fed’s Blackout and Future Expectations

As the Fed entered a blackout period, analysts anticipate interest rates to be maintained within the range of 5.25%-5.50%. Expectations for March rate cuts have slightly diminished, with futures traders scaling back their outlook.

Closing Thoughts

In a dynamic market, staying informed is key. The week ahead offers a mix of earnings reports, central bank decisions, and crucial economic data. As we navigate these trends, remember that market conditions can shift rapidly. Adaptability and a long-term perspective are essential for making prudent financial decisions.

Note: Market conditions are subject to change, and this overview is based on information available at the time of writing.

Sources: Reuters, Bloomberg, CNBC and Financial Times

FAQs

1. Why are semiconductor stocks performing well in 2024?

The strong performance of semiconductor stocks in 2024 can be attributed to the growing significance of AI technology, driving demand for related components and technologies.

2. What central bank decisions are expected this week?

The Bank of Japan is expected to maintain rates, and the European Central Bank (ECB) is likely to keep rates steady with a hawkish tone. The People’s Bank of China (PBoC) and Bank of Canada (BoC) will also announce interest rate decisions.

3. Which tech companies are reporting key earnings this week?

Anticipated earnings reports include Tesla, Netflix, Visa, and American Airlines, offering insights into the performance and outlook of these key players in the tech and aviation sectors.

4. What factors are influencing the global economic outlook?

Various factors, including inflation trends, PMI data, and central bank decisions, are influencing the global economic outlook. Investors are closely watching how these elements shape market dynamics.

5. Why did tensions rise in the Middle East, and how did markets react?

Tensions escalated in the Middle East due to US air strikes on Houthi anti-ships in the Gulf of Aden. Despite this, equities rebounded to set a new all-time high for the S&P 500, showcasing resilience in the markets.

6. What are the notable trends in currency movements?

The US Dollar resumed its upward trend, supported by rising yields. Meanwhile, commodity currencies, including the Australian Dollar and Norwegian Krone, faced underperformance.

7. How did key economic indicators, such as GDP and Retail Sales, perform in the US?

The US witnessed slowing inflation, opening the door for potential rate cuts. Investors are closely monitoring Thursday’s Advance GDP data and Friday’s key inflation indicators for further insights.

8. What is the significance of the Fed’s blackout period?

The Fed’s blackout period, which began on January 20th, is in anticipation of the FOMC meeting on January 30th and 31st. During this period, analysts expect the Fed to maintain interest rates within a certain range.

9. Why did gold and silver prices face challenges despite changing yields?

Precious metals, including gold and silver, faced challenges as yields rose. The market sentiment appears to be favouring other assets, contributing to the underperformance of metals.

10. What should investors watch for in the upcoming week?

In the coming week, investors should closely monitor a myriad of events, including central bank decisions, earnings reports from major companies, and key macroeconomic data like EU Consumer Confidence and Global Flash PMI.

If you have specific questions or concerns about your investments, don’t hesitate to reach out to our financial advisers for personalised guidance and recommendations.