Geopolitical developments and a moderation in the once white-hot technology segment are weighing on investor sentiment, tempering moves across equities, currencies and commodity markets, as traders head into a busy data week.
In Asia, stock markets in the region were relatively quiet with many exchanges closed for Lunar New Year observances, though those that were open saw modest gains. The Nikkei was a notable outlier, climbing more than 1% as hopes rose that Japan’s technology companies could gain from about $36 billion in U.S. projects announced by President Donald Trump’s administration that are to be funded by Tokyo.
Diplomatic activity in Geneva added another layer of focus. Talks convened there aim to reduce tensions in both the Middle East and Europe. Iranian Foreign Minister Abbas Araqchi said Iran and the U.S. had reached an understanding on "guiding principles" to address their nuclear dispute. Separately, representatives of Ukraine and Russia finished the first day of a two-day round of U.S.-facilitated peace discussions.
Sentiment is also colored by continued concern over lofty valuations in companies tied to artificial intelligence and how AI might affect the wider economy. Those worries, together with geopolitical uncertainty, are contributing to muted price action across markets.
Currency moves reflected shifts in monetary policy expectations. The New Zealand dollar fell nearly 0.9% after the Reserve Bank of New Zealand left interest rates unchanged and signaled that forecasts of easing inflation should permit a continued accommodative stance. Back in the United States, Chicago Fed President Austan Goolsbee said on Tuesday there could be "several more" rate cuts this year, contingent on inflation developments. Market participants are set to receive further clues on the Federal Reserve’s stance when the minutes from its January meeting are released later on Wednesday.
In Europe, attention is on British labour and inflation dynamics. A report on Tuesday showed unemployment rose to a five-year high, a development that has strengthened arguments for potential rate reductions by the Bank of England and led to downward pressure on the pound. The UK consumer price index is forecast to slow to 3% year-on-year in January from 3.4% in December. France will also publish CPI data that market participants will watch closely.
Futures pointed to only slight gains ahead of the European open. Euro Stoxx 50 futures were up 0.07% at 6,039, German DAX futures added 0.06% at 25,074, and FTSE futures were 0.14% higher at 10,529. U.S. S&P 500 e-minis rose 0.06% to 6,864.8.
Key developments that could influence markets on Wednesday include:
- Earnings from Glencore, Orange and Covivio
- Inflation prints for the UK and France
- U.S. housing starts and durable goods figures for December; industrial production for January
- Minutes from the Federal Reserve’s January meeting
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With diplomatic efforts in Geneva, central bank commentary and a raft of data due this week, markets appear set to weigh developments across geopolitics, inflation and technology earnings before committing to larger directional moves.