Asian Market News: NVIDIA Fuels a Nikkei Breakout Amid BoJ Policy Uncertainty

Private Sector PMIs from Japan Muddy the Monetary Policy Waters

In February, the Jibun Bank Manufacturing PMI fell from 48.0 to 47.2. Significantly, the Jibun Bank Services PMI declined from 53.1 to 52.5. Economists forecast Manufacturing and Services PMIs of 48.2 and 53.2, respectively.

While the headline PMI numbers garnered investor interest, sub-components of the Services PMI were pivotal. According to the preliminary February survey, input and output prices increased at a more modest rate midway through the first quarter.

The Bank of Japan recently highlighted the services sector as a needed contributor to demand-driven inflationary pressures. A more modest increase in input costs suggests softer wage growth, which could impact BoJ plans to exit negative rates in April.

The USD/JPY responded to the weaker-than-expected PMI numbers, rising to a morning session high of 150.458. On Thursday morning, the USD/JPY was up 0.05% to 150.354.

The NVIDIA Effect

NVIDIA (NVDA) smashed earnings forecasts overnight on Wednesday, highlighting the surging interest in Artificial Intelligence (AI). NVIDIA reported a 265% rise in total revenue year-on-year, fueled by AI chip sales.

NVDA shares ended the Wednesday session down 2.85% to $674.72. However, shares surged 9.07% to $735.94 in after-hours trading as the markets reacted to the earnings report.

The Australian and Hong Kong markets showed little reaction to the NVIDIA earnings. The Hang Seng Tech Index (HSTECH) was down 0.23%, with the S&P ASX All Technology Index (XTX) up by a modest 0.07%.

In contrast, AI-linked stocks on the Nikkei reacted strongly to the NVIDIA earnings. Softbank Group Corp. (9948) and Tokyo Electron Ltd. (8035) were up 4.59% and 4.20%, respectively, sending the Nikkei up 1.56% early in the Thursday session.

The Hang Seng Index and ASX 200 were down 0.02% and 0.10%, respectively. Market reaction to overnight FOMC Meeting Minutes from Wednesday impacted the appetite for riskier assets. Significantly, the FOMC Meeting Minutes aligned with recent FOMC member speeches, highlighting concerns about cutting rates too early.

The FOMC monetary policy meeting occurred before the hotter-than-expected US consumer and producer price numbers.

According to the CME FedWatch Tool, the probability of a 25-basis point June Fed rate cut declined from 53.9% to 52.2% this morning. The chances of a 50-basis point June rate cut fell from 21.7% to 16.7%.