Overview
Asian markets opened the week with gains after the Liberal Democratic Party won a commanding majority in Japan's lower house, handing prime minister Sanae Takaichi the political latitude to pursue a broad package of spending increases and tax cuts. The Nikkei jumped nearly 4% on Monday, climbing past the 56,000 threshold for the first time and establishing a fresh all-time high.
Japanese market reaction
The decisive parliamentary outcome gave markets cover to price in an expansionary fiscal trajectory, and the Nikkei's almost 4% gain reflected that sentiment. By Monday, both the yen and Japanese government bonds were broadly stable. Market participants noted that stability could reflect prior anticipation of the policy direction - the known - while attention has shifted to the outstanding question of how the planned fiscal plans will be funded.
Currency watchers have also factored in expectations that authorities would step into foreign exchange markets to defend the yen if it weakened toward the psychologically important 160 per dollar mark. That prospective intervention appears to be one of the elements supporting the currency at present.
U.S. futures and equity rotation
Across the Pacific, Wall Street futures were steady on Monday after a sharp rebound on Friday that was led by chipmakers. The late-week rally lifted both the S&P 500 and the Nasdaq by roughly 2% on Friday. Chip stocks played a central role in the rebound, with Nvidia, AMD and Broadcom each rising by more than 7% during the session.
Software and data services firms - which had been under pressure earlier in the week amid concerns related to artificial intelligence spending - recovered some ground as investors pared losses. Yet the market's internal dynamics suggested a rotation rather than a uniform rally: investors appeared to be shifting out of richly valued mega-cap names into smaller, cheaper companies. The Russell 2000, a benchmark that tracks small- and mid-cap stocks, advanced 3.5% on Friday, outpacing the gains in the large-cap oriented S&P 500 and Nasdaq.
At the same time, signs of cautious sentiment remain. The VIX index, commonly cited as Wall Street's fear gauge, fell on Friday for the first time in three trading days, signaling a modest easing of short-term risk aversion.
Sectoral tensions: chipmakers versus hyperscalers
Friday's chipmaker strength came alongside persistent worries about the spending trajectories of AI hyperscalers. In some cases, the market moves suggested that gains for semiconductor suppliers could coincide with investor concerns about high capital expenditure plans at large cloud and AI companies. Amazon exemplified that tension: shares fell 5.6% on Friday after the company disclosed plans for a capital expenditure increase of more than 50% in 2026.
Commodities and precious metals
Precious metals firmed on Monday after robust rebounds on Friday. Both gold and silver posted gains as investors recalibrated positions following the late-week moves.
What to watch this week
The principal focus for markets this week is a heavy docket of U.S. economic data. Key releases include a delayed January employment report, alongside retail sales and the consumer price index. Traders will scrutinize these reports for evidence of whether the economy is slowing enough to keep alive bets on a potential rate cut around mid-year.
Chart of the day
Japan's Nikkei closed above 56,000 on Monday for the first time, propelled by the ruling party's decisive parliamentary majority and investor expectations for increased fiscal stimulus and tax relief.
Events to watch
- U.S. 3-month and 6-month bill auctions
- Speeches by Fed Governor Christopher Waller
- Speeches by Fed Governor Stephen Miran
- Remarks from Atlanta Fed President Raphael Bostic
Market tone
Overall, the market tone is cautiously constructive: Asian equities benefited from political clarity in Tokyo, while U.S. markets consolidated gains after a chip-led rebound. Investors are awaiting a string of U.S. macro releases that could either reinforce or undermine expectations for future interest-rate moves.
Note: This dispatch summarizes market moves and scheduled events as reported for the trading sessions referenced. The narrative focuses on developments that market participants are weighing ahead of the key U.S. economic releases this week.