European stocks are on track to hit a new record high, while US equity futures showed gains, as investor optimism over increased artificial intelligence (AI) spending under President Donald Trump helped offset uncertainties surrounding impending tariffs. The Stoxx Europe 600 index rose by 0.6%, surpassing its previous record from September, with healthcare and insurance sectors leading the charge. Meanwhile, futures for the S&P 500 and Nasdaq 100 indicated that the robust rally on Wall Street from the past two sessions is likely to continue.
Asian tech stocks also saw an uptick, spurred by Trump’s plans to boost investment in the AI sector, reflecting the growing focus on technological growth as a key driver of market sentiment.
The ongoing divergence in global financial markets highlights the challenges facing investors, who must navigate complex factors as the Trump administration moves forward with its broad policy changes. The first two days of Trump’s presidency have largely supported market sentiment, with investors focusing on his pro-business policies and the reduction of immediate tariff threats.
Market Sentiment: Optimism Amid Uncertainty
Michael Brown, senior research strategist at Pepperstone Group Ltd., expressed cautious optimism: “I still see the path of least resistance, albeit a choppy one, leading higher on Wall Street. The incoming administration has an incentive to keep the market buoyant, given how the performance of the Dow tends to be Trump’s personal yardstick of his own success. Solid economic performance and strong earnings growth should help sustain the rally.”
In Europe, healthcare and technology stocks were the main beneficiaries of the positive sentiment, while mining stocks lagged as iron ore and industrial metals declined, driven by concerns over the potential impact of tariffs on China’s economy.
US Treasury Yields and Dollar Movement
US 10-year Treasury yields remained stable after falling five basis points in the previous session, while the US dollar erased earlier gains to trade flat.
Chinese stocks experienced losses after President Trump reiterated his consideration of a 10% tariff on all Chinese goods. Despite this, China was largely spared from Trump’s early tariff actions, with the president instead targeting Canada and Mexico in his initial moves.
Nigel Peh, a portfolio manager at Timefolio Asset Management Co., commented, “We are seeing quite a broad-based pullback today, which is a surprise. I feel that the 10% tariffs on China—a more gradual approach—are actually better than feared. There’s a chance that people are just using any excuse to take profit.”
China’s Response and Tech Stock Movements
At the World Economic Forum in Davos, Switzerland, Chinese Vice Premier Ding Xuexiang addressed trade concerns, stating that China plans to expand its imports to promote balanced trade.
In the tech sector, SoftBank Group saw its shares rise over 10% after Trump named the company as a participant in the ‘Stargate’ AI joint venture, driving the Japanese company’s stock to its highest level since July and boosting sentiment for other tech stocks.
However, Chinese and Hong Kong tech stocks were less affected by the rally. The Hang Seng Tech index, which includes some of China’s largest tech firms, dropped as much as 2.8%, reflecting a divergence in investor sentiment between Western and Asian markets.
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