Asia stocks rally as Nikkei jumps, chip sector rebounds

Market Reactions and Economic Outlook

By Wayne Cole

Nikkei's Record Performance

SYDNEY, Feb 9 (Reuters) - Asian markets jumped on Monday as a resounding win for Japanese Prime Minister Sanae Takaichi whetted appetites for more reflationary policies, while there was widespread investor relief at a last-gasp rebound in U.S. chip stocks.

Chip Sector Recovery

A rally in chip stocks and bargain hunting in beaten-down momentum plays including silver had helped shore up sentiment, as did wagers of more rate cuts from the U.S. Federal Reserve.

US Economic Data and Its Implications

A rate cut by June is now seen as an odds-on bet, with a slew of economic data this week on jobs, inflation and spending expected to reinforce the case for stimulus.

Japan's Nikkei led the gains with a rise of 4.4% to all-time highs as the government's decisive majority clears the way for more spending and tax cuts.

"The victory gives Takaichi a stable majority, enabling decisive action on fiscal stimulus, AI, semiconductors, energy security, and strategic reforms," said Marc Jocum, a senior investment strategist at Global X ETFs Australia.

"Japan was long seen as a contrarian investment, but is now a reform story with meaningful momentum," he added. "Political stability, improving returns on capital, domestic capital deployment and reasonable valuations all point in the same direction."

The prospect of more borrowing, however, pushed two-year yields up to their highest since 1996 at 1.3%.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 2.2%, while South Korea's tech-heavy index climbed 4.3%.

Chinese blue chips rose 1.3%, ahead of inflation figures due on Wednesday that are expected to show a pullback in food prices and continued deflation in producer prices.

As for Europe, EUROSTOXX 50 futures firmed 0.4%, as did DAX futures, while FTSE futures rose 0.5%.

S&P 500 futures gained 0.1% and Nasdaq futures added 0.3%, having both bounced more than 2% on Friday to break a run of heavy losses.

Chip stocks saved the day with Nvidia jumping almost 8%, while Advanced Micro Devices surged over 8% and Broadcom rose 7%.

Yet concerns remained about whether the truly massive amounts being spent on AI will ever make a return, and which companies will ultimately benefit or fail. The four largest U.S. tech giants alone plan to spend $650 billion on capex this year.

"Investors are sensibly rotating from AI spenders to beneficiaries, services to manufacturing, U.S. exceptionalism to global rebalancing," wrote analysts at BofA in a note. "We are long Main St, short Wall St."

US DATA TO TEST FED WAGERS

To sustain the rally, U.S. data this week would need to be benign enough to keep rate cuts alive, but not so weak as to threaten consumer demand and earnings.

Payrolls are forecast to rise 70,000 in January, to leave the unemployment rate at 4.4%, though payroll growth over 2025 is also expected to be revised down quite sharply.

Retail sales are seen up a moderate 0.4%, while headline and core consumer price inflation is forecast to slow a little to 2.5% in January.

Any downside misses would tend to pull Treasury yields and the dollar lower, though the yen and pound have plenty of troubles of their own.

Investors have already sold the yen in anticipation of Takaichi's debt-funded expansionary policies, and the initial reaction was to take profits, pulling the dollar down 0.3% to 156.74, some way from the recent peak at 159.45. Analysts assume a push toward 160.00 would likely draw threats of intervention from Tokyo.

The euro was a shade firmer at $1.1821, having held to a tight range for the past week. Sterling was stuck at $1.3596, still plagued by political uncertainty amid speculation UK Prime Minister Keir Starmer could lose his job.

Starmer's chief of staff, Morgan McSweeney, quit on Sunday, saying he took responsibility for advising Starmer to name Peter Mandelson as ambassador to the U.S. despite his known links to Jeffrey Epstein.

"Should Starmer be replaced, gilt yields initially rise and the pound weakens," said Ruth Gregory, deputy chief UK economist at Capital Economics.

"The most likely longer-lasting influence is a loosening in fiscal policy that leads to higher gilt yields than otherwise and a weaker pound than otherwise."

In commodity markets, silver added 3.9% to $81.03, after swinging wildly from a 15% loss to a 9% closing gain on Friday. The metal had plunged in the last two weeks as leveraged positions were caught in a vicious squeeze triggering margin calls and forced selling. [GOL/]

Gold was up 0.8% at $5,000 an ounce, having been as low as $4,403 at one stage last week.

Oil prices continued to gyrate as markets waited on the outcome of talks between the U.S. and Iran, which have so far failed to reduce the risk of a military conflict between the two countries. [O/R]

Brent edged down 0.8% to $67.52 a barrel, while U.S. crude fell 0.7% to $63.09 per barrel.

(Reporting by Wayne Cole; Editing by Sonali Paul)