It has been a theme for a few weeks now, but equity weakness on the back of investors chasing ‘AI losers’ continues to grab the headlines. Yesterday, it was the turn of a Citrini Research report suggesting that AI will cause mass unemployment that will continue to weigh on professional services, including the banking sector. None of this, so far, has delivered the knock-out blow to equity markets, where the S&P 500 has gyrated in a narrow 6775-7000 range since the start of the year. Tomorrow evening’s Nvidia release might be the next big story, however.
That said, global equity markets are showing pockets of strength. In Asia, the semiconductor-heavy benchmark indices in Korea and Taiwan continue to power ahead as investors also keep an eye on the AI winners. On the subject of winners, Asia is seen as one of the key beneficiaries of the IEEPA tariff ruling, and Asian exporters have already been performing well. Data yesterday showed some very strong early February export figures from Korea. And combined with other measures to attract capital and FX earnings back onshore, we have a call that USD/KRW can trade back down to 1425 by the end of March.
As to the broader dollar trend, it remains quite mixed. Inputs into the story today will be the weekly ADP jobs figures, consumer confidence, Fed speakers and President Trump’s State of the Union address tonight. In a speech yesterday, the Fed’s Christopher Waller laid out the risks that the strong January NFP data could well be revised lower, given that it was inconsistent with other labour market data. A soft ADP print today might prove a mild dollar negative in that case. On consumer confidence, the divergence between very pessimistic consumer surveys and strong actual spending remains acute. A modest pick-up in February consumer confidence data today then looks unlikely to move the needle on the dollar. We also have a handful of Fed speakers, where the likes of Goolsbee and Bostic sit at the more hawkish end of the spectrum. The DXY dollar index has stalled at 98.00 on a couple of occasions now, and we prefer a 97.50-98.00 range here.
For those interested in whether the dollar is undergoing a cyclical or, more worrying, structural decline, please see a new report we published yesterday on the topic. We also have a webinar on the topic at 1400 CET – please use this link to join.
Chris Turner