Asia stocks seen muted on holiday trade, oil gains

Asian stocks were poised for a subdued start Tuesday, with holiday-thinned trading keeping volumes light as investors await a fresh round of economic data later this week for direction. Equity-index futures for Japan were a touch weaker, while shares opened higher in Australia. European shares were flat and markets in the US were closed. Mainland China and Hong Kong are shut for Lunar New Year holidays. The yen was slightly weaker. Futures contracts for US gauges were mixed. Gauges for developing-nation currencies and stocks edged higher Monday, with expectations of Federal Reserve interest-rate cuts supporting riskier assets. West Texas Intermediate crude oil gained 1.3% at the open. The US rate path remains in focus following the slower-than-expected inflation print on Friday as traders fully priced a Fed cut in July and the strong chance of a move in June. Investors are also paying attention to the shifts in sentiment around artificial intelligence, which may reverberate far beyond the technology sector with the emergence of the so-called AI scare trade. “The backdrop for equities is positive post CPI,” said Andrea Gabellone, head of global equities at KBC Securities. At the same time, there could be “more dispersion ahead as sentiment around key AI-exposed sectors is still very critical,” he added. In Asia, data set for release Tuesday includes Reserve Bank of Australia policy meeting minutes and the tertiary industry index for Japan. A sale of five-year bonds is also due in Japan. In the US on Tuesday, Fed Governor Michael Barr will speak on the labor market and AI, while San Francisco Fed President Mary Daly speaks on AI and the economy. Traders will also be watching for ADP private payrolls numbers on Tuesday and the minutes from the Fed’s January meeting on Wednesday for a fresh read on the economy. Cash trading in Treasuries will resume Tuesday after bonds rallied on Friday in reaction to the benign US inflation data. Treasury two-year yields dropped to their lowest level since 2022 as traders priced in higher chances the Fed will slash rates more than twice this year. Yields on the benchmark 10-year stood at 4.05%, the lowest level since November. In Japan, the central bank governor said Prime Minister Sanae Takaichi made no specific requests during a regular meeting to discuss the economy and swap general ideas. Investors and economists are trying to gauge whether an emboldened Takaichi will try to slow down the central bank’s path of interest hikes to protect economic growth or if she will instead encourage the BOJ to act to help support the yen. Meanwhile, the impact of AI, which has driven selling pressure across multiple stock-market sectors in recent weeks, continued to draw attention. A JPMorgan Chase & Co. team led by Mislav Matejka urged caution on stocks at risk of AI-driven “cannibalization” including software, business services and media companies. Firms are developing tools to capitalize on the divergence. Goldman Sachs Group Inc. launched a new basket of software stocks that goes long firms that will benefit from AI adoption, while shorting the companies whose workflows could be replaced. With AI disruption rippling through markets, a lot will come down to earnings resilience, in particular in the US. “When you look at the current earnings season, the companies are showing 13% of growth,” Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan, told Bloomberg TV. “Overall, this is the reason why we continue to be positive on the S&P.”