LDN - Business

Chipmaker rally offers balm amid rate cut rethink

[January 19, 2024] By Huw Jones

LONDON (Reuters) -Global stocks firmed on Friday, underpinned by a rally in computer chipmakers, although investors continued to reconsider their bets on when central banks will start cutting interest rates.

Oil prices ticked higher as geopolitical tensions in the Middle East and oil output disruptions in the United States overshadowed concerns about slow Chinese demand.

The dollar headed for a second weekly gain in a row, helped by a resilient U.S. economy and caution about when the U.S. Federal Reserve will begin cutting rates. The rethink in rate cut bets left gold on track for its worst week in six.

Markets hope for more clues on the timing of any easing in borrowing costs when European Central Bank President Christine Lagarde speaks at the World Economic Forum gathering in Davos later in the morning.

The MSCI All Country stock index was up 0.3% as a rally in semiconductor stocks, triggered by Taiwan's TSMC predicting strong growth, helped push the S&P 500 index on Wall Street to end near a record high on Thursday.

The MSCI index, however, is down 1.4% this month after a near 20% jump in 2023.

Markets were pricing in a 57% chance of a U.S. rate cut in March, down from 75% a week ago.

Mike Hewson, chief market strategist at CMC Markets, said it was wishful thinking for markets to expect the Fed to start cutting rates in March, barring any massive escalation of events in the Middle East or other big economic event.

"The economic case for rate cuts has not changed, I just think they will come in the second quarter, maybe the ECB a little earlier," Hewson said.

"We are still range trading, and I think that is going to continue, albeit in a fairly choppy manner until we get some sort of clarity as to whether we can pin down the timing of the first rate cut," Hewson added.

In Europe, the STOXX index of 600 companies was up 0.3%, though it remains about 1.8% down for the month.

Patrick Spencer, RW Baird vice chair of equities, said the deflationary trend was continuing thanks to China, helping to bolster the case for rate cuts, with the corporate earnings season now underway also helping sentiment.

"China is exporting deflation and money supply is falling. I do think the Fed is going to pivot, maybe not with as many as rate cuts as we expect, hence there might be continued disappointment," Spencer said.

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A man watches stock quotations on an electronic board outside a brokerage, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo

"The earnings numbers, as always, will be slightly better than expected, and I think that's going to most probably rescue the market and you wont' see a dramatic downturn," Spencer added.

U.S. stock index futures were firmer.

THE CHIPS ARE UP

Asian shares bounced on Friday, buoyed by a rally in global chipmakers, while the yen was set to end the week with heavy losses.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rallied 1.17% on Friday, but was still down 2.7% for the week.

TSMC surged 6.5% after the chipmaking giant projected 2024 revenue growth of more than 20%. Its U.S. shares soared nearly 10% overnight, fuelling a broad tech rally on Wall Street.[.N]

Japan's Nikkei rose 1.4% to just a touch below a 34-year top hit on Wednesday. Data showed Japan's core consumer inflation slowed for a second straight month in December, adding to speculation that the BOJ is not in a rush to tighten its ultra loose monetary policy.

The yen lost 0.04% to 148.105 per dollar, having fallen almost 2.5% for the week to the lowest level since early December. [FRX/]

Chinese stocks slipped again after bouncing off five-year lows a day before on signs of state support.[.SS]

The U.S. dollar index, which measures the greenback against a basket of major currencies, was up 0.058%, and has gained about 0.9% this week.

Treasuries held mostly steady in Asia but are also set for heavy weekly losses. The 10-year yield rose 2 basis points to 4.1456%, up 21 basis points for the week, while the two-year yield held at 4.3527% and up about 20 bps on the week.

U.S. crude futures were up 0.1% at $74.19 per barrel and Brent futures were at $79.17, up slightly on the day.

Spot gold eased 0.3% to $2,029 an ounce.

(Reporting by Huw Jones, additional reporting by Stella Qiu; Editing by Sonali Paul and Susan Fenton)

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