LDN - Business

Marketmind: Stocks hold records with Powell in view, Nikkei tops 40k

[March 04, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

Record tech-led U.S. and world stock indexes, a recoil in Treasury bond yields and the prospect of fresh Chinese stimulus make for a potent cocktail heading into this week's key testimony from Federal Reserve boss Jerome Powell.

Japan's Nikkei notched another milestone overnight, topping 40,000 for the first time as the artificial intelligence catalyst fizzed around the world. Chip-testing equipment maker Advantest, which counts AI darling Nvidia among its customers, was up 3.7% and chip-making equipment giant Tokyo Electron gained another 2.4%.

South Korea's Kospi added more than 1%, while Taiwan's benchmark jumped almost 2%.

In the slipstream of Wall St's surge to new records on Friday, as the Nasdaq set a new intraday peak for the first time in more than two years and the Russell 2000 small cap benchmark hit its highest since early 2022, MSCI's all-country index clocked all-time highs on Monday.

Dell Technologies surged 31.62%, its biggest daily percentage gain ever, after the personal computer maker forecast annual revenue and profit above Wall Street estimates.

All of which came just as U.S. manufacturing readouts for February surprisingly slipped further into contractionary territory, despite some indications of stabilization.

But that factory signal saw a sharp retreat in Treasury yields, the biggest daily drop in two-year yields < since January. And that was aided by relatively benign noises on future rate cuts from Friday's long list of Fed speakers, some of whom gave further indications about a possible slowing of the pace of the central bank's balance sheet runoff.

The New York Fed reported on Friday that its overnight reverse repo facility, which it uses to help put a floor underneath short-term interest rates, took in $441.3 billion - its lowest level in nearly three years.

Dallas Fed president Lorie Logan said the Fed's balance sheet rundown was progressing without much problem, but it would likely need to slow the pace of the runoff once that key reverse repo facility is exhausted.

Treasuries were also captivated by indications from Fed Governor Chris Waller, who said he would like to see Treasury holdings shift to a larger share of short-dated securities.

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 6, 2024. REUTERS/Brendan McDermid/File Photo

All of which tees up Powell's key congressional testimonies this week, starting at the House Financial Services Committee on Wednesday and reprised at the Senate Banking Committee on Thursday. The critical February jobs report is also out Friday.

After a booming Friday on markets, S&P500 futures held most of the gains early Monday - though were slightly in the red ahead of the bell. Treasury yields remained on the back foot.

Elsewhere, crude oil prices held steady after hitting highs for the year on Friday as OPEC+ countries extended output cuts again. But year-on-year crude gains remained close to zero.

China's stocks pushed higher ahead of Tuesday's annual National People's Congress, which is expected to unveil moderate stimulus plans to stabilize growth - even if a detailed roadmap of policies to fix the country's deep structural imbalances may not be forthcoming. Premier Li Qiang is expected to set a growth target of around 5% for 2024.

But property worries continue to linger. Real estate developers slumped 3.6% to underperform other sectors, with property giant China Vanke down 4.7%.

Investors sold China Vanke stock and bonds on Monday as concern over the developer's liquidity trumped fundraising plans and assurance from a business partner.

Elsewhere, it's a big week for G7 central banks - with the European Central Bank and Bank of Canada both making policy decisions. Britain also unveils its annual budget.

And Bitcoin, already up more than 50% this year, rallied to a two-year high, breaking above $65,000 as a wave of money carried it within about 5% of record levels.

Key diary items that may provide direction to U.S. markets later on Monday:

* Philadelphia Federal Reserve President Patrick Harker speaks

* U.S. Treasury auctions 3-, 6-month bills

* U.S. corp earnings: Archer-Daniels-Midland, GitLab, Viant Technology, Eos Energy etc

(Editing by Bernadette Baum)

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