After the sharp rebound of US stocks this week, how will the delay of non-farm payrolls and inflation, as well as the results of the Japanese general election, stir up global assets?

Last Friday, the US stock market staged a major turnaround, with the Dow Jones Industrial Average closing above 50,000 points for the first time, and the S&P 500 Index and the Nasdaq Composite Index both jumping 2% in a single day, erasing some of the earlier losses from earlier in the week. However, the tech-heavy Nasdaq Index still fell nearly 3% last week, marking its fourth consecutive week of declines. This was mainly due to continued concerns among investors about the impact artificial intelligence (AI) may have on the software industry, which dominated the sentiment in the market for most of last week. Additionally, recent announcements of large expenditures by companies like Microsoft Corporation (MSFT.US) and Alphabet Inc. Class C (GOOGL.US) further exacerbated concerns about the long return cycle for investments in AI by tech giants. The S&P 500 Index also closed lower last week, making it the third week of declines in the past four weeks. Year-to-date, the Dow and the S&P 500 Index are still up, but the Nasdaq Index has already given back all its gains for the year. The market turmoil has also spread to other assets. The cryptocurrency market experienced sharp fluctuations, with Bitcoin briefly falling below $70,000, driven not only by the weak market sentiment but also by the ongoing influence of the "CLARITY Act" on market trends; while the situation between the US and Iran has caused international oil prices to be volatile. Although Iran and US officials held nuclear talks in Muscat, the capital of Oman, on February 6, no substantive agreement has been reached yet. Trump stated that "both sides are talking very well" and that there will be more talks this week. Looking ahead to this week, the market is facing a key data window. On Tuesday, the US Department of Commerce will release retail sales data for December; the January nonfarm payrolls report, which was delayed due to a brief government shutdown last week, will be released on Wednesday. Economists expect an increase of 70,000 nonfarm jobs last month, with the unemployment rate expected to remain unchanged at 4.4%. Friday will see the release of key inflation data. The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) report, with the market expecting a 0.3% increase month-on-month, and a 2.5% increase year-on-year. This five-day delayed employment report, which ended on February 3, is being published at a time when signs of instability in the US labor market are becoming evident. ADP data shows that the private sector added only 22,000 jobs in January, about half of what economists had expected. In addition, the JOLTS job vacancy data released last Thursday showed that job vacancies in December had fallen to their lowest level since the peak of the pandemic in 2020. Challenger, Gray & Christmas' global job cuts data for January also showed that announced layoffs by companies hit the highest level for the same month since 2009. In a Thursday email comment, Cory Stahle, senior economist at the job site Indeed, wrote, "For most of the past year, the dynamics of 'low hirings, low layoffs' have largely continued in December, with low layoff rates and even a slight decrease in the unemployment rate. But some of the sporadically strong areas that had previously supported the market seem to be rapidly fading." It is worth noting that in addition to covering the usual monthly nonfarm employment and unemployment data, this January nonfarm employment report will also include annual employment revisions. Analysts expect the revised data to show that in the year leading up to March 2025, job growth in the US has been significantly lower than initially reported. Barclays said that based on the latest QCEW data, nonfarm employment levels in March 2025 may be revised down by about 1 million, which means that monthly job growth in the past year has been overestimated by about 80,000 to 90,000. Citigroup has issued a warning from a "quality" perspective, saying that even if the January nonfarm data appears strong, it may be due to residual seasonal and model deviations, and may not necessarily indicate stable employment; the real signals reflecting the downward trend are more likely to appear in the spring and summer. This means that while the market is still focused on whether the January nonfarm data is good or bad, the real narrative that may reshape employment trends is a systematic reevaluation of employment levels in 2025. Currently, traders believe that the likelihood of a Fed rate cut next month is less than 20%. Policy makers decided in January to keep the benchmark interest rate in the range of 3.5% to 3.75%. In terms of corporate earnings, this week will see well-known companies such as Coca-Cola Company (KO.US), McDonald's Corporation (MCD.US), Cisco Systems, Inc. (CSCO.US), and ON Semiconductor Corporation (ON.US) releasing their latest financial results. In the Asian markets, a survey released last Sunday showed that the ruling Liberal Democratic Party, led by Prime Minister Kishida Fumio, had won an absolute majority of more than two-thirds of the seats in the Lower House, leading to a weakening of the yen exchange rate towards the 160-dollar mark. This result paves the way for Kishida's implementation of more fiscal stimulus policies, increases pressure on Japanese bonds, and may boost the stock market. Tim Waterer, Chief Market Analyst at KCM Trade, said, "The election result is clear, and Kishida's economic stimulus policies now have a clearer path forward, which is undoubtedly good news for the Nikkei Index. However, the fiscal stimulus plan proposed by the Liberal Democratic Party has essentially been approved, and the yen may face greater downward pressure." Market Sentiment Downturn Despite the significant rebound in the US stock market last Friday, the week was still challenging for the stock market, reaching a double low in prices and sentiment last Thursday. Steve Sosnick, Chief Strategist at Interactive Brokers Group, Inc. Class A, wrote in a report to clients, "It was another day of declines, with mainstream financial assets collectively weakening. Unfortunately, this phenomenon is not unfamiliar. But what's different this time is that the market decline is not due to sector rotation, but a pure sell-off across the board." Sosnick pointed out that last Thursday, the number of declining stocks among the S&P 500 Index constituents far exceeded the number of advancing stocks; while in the first three trading days of last week, the market still showed a pattern of more advancing stocks than declining ones. Michael Toomey, a stock trader at Jefferies Financial Group Inc., bluntly stated in a client report, "Overall, I have never seen such a low market sentiment in any sector in my career. I think the software sector is about to experience a strong rebound." While Friday's rebound was strong, this may just be the beginning of this period of intense volatility. Last week, the iShares Expanded Tech-Software Sector ETF (IGV.US) fell by 8.7%, extending its year-to-date decline to 23%. NVIDIA Corporation (NVDA.US) rose nearly 8% last week, but other tech giants like Amazon.com, Inc. (AMZN.US), Alphabet Inc. Class C, Meta (META.US), all declined in trading last Friday. Over the past two weeks, these three companies, along with Microsoft Corporation, have announced a combined investment of approximately $650 billion for AI-related initiatives. Despite the heavy bets by tech giants, investors still believe that the restructuring impact of AI on various industries, and its strategic planning for core market targets, are still in the early stages. Kyle Rodda, an analyst at Capital.com, said in a client report on Thursday, "The key word for all tech company earnings reports right now is capital expenditure (CAPEX)." He pointed out that investor concerns are intensifying: whether each new capital expenditure by companies can bring in enough returns to support the current valuation levels. "This is a conclusion drawn from data analysis." Similar to the trend in the software sector, the cryptocurrency market was also stuck in a downward spiral last week, with bulls being repeatedly defeated until a stabilizing rebound on Friday. During last Wednesday to Thursday, the price of Bitcoin plummeted by 12%, erasing all gains since the start of the Trump administration, with the intraday low briefly falling below $65,000. At the same time, a number of cryptocurrency-related stocks such as Strategy (MSTR.US), Robinhood (HOOD.US), and Coinbase (COIN.US) all saw double-digit declines until a strong rebound on Friday. Adding to the woes, Michael Saylor's Strategy released its financial report last Thursday, recording a $17.4 billion operating loss in the first quarter, far exceeding the $1 billion loss in the same period last year, further dampening market sentiment. Robinhood and Coinbase are expected to release their earnings reports this week, with the results likely to have further impacts on the cryptocurrency market. Bitcoin's price saw a significant rebound on Friday, crossing back above the $70,000 mark, but the overall sentiment in the cryptocurrency market remains in line with the views widely circulated on social media platform X earlier in the week. Richard Farr, Chief Market Strategist at Pivotus Partners, had stated that his institution had lowered the target price of Bitcoin to $0. He believed that Bitcoin has failed to serve as a hedge against the US dollar risk and is fundamentally still a speculative asset. Farr wrote, "This target price is not meant to be sensational, but is a conclusion drawn from data analysis. Bitcoin has never acted as a hedge against the dollar, but has instead become a speculative tool highly correlated with the Nasdaq index; it has also failed to become a widely accepted medium of exchange, and no serious central bank would hold an asset controlled by Michael Saylor's circulating supply." Sosnick of Interactive Brokers Group, Inc. Class A pointed out in a client memo that as Bitcoin prices fell, prices of precious metals like gold and silver surged significantly. When investors see the market weakening, they rush to sell Bitcoin and exit, leading to a sharp decline in its price. Sosnick wrote, "My previous views still applyBitcoin has become an asset for the ordinary investor. The post-election surge in the cryptocurrency market was not driven by steadfast holders, but by ordinary investors chasing the rally through exchange-traded funds. When the rally fades, they turn to precious metals, and this crazy sector rotation is now facing its inevitable outcome." Regarding the future direction of Bitcoin and other digital currencies, Andy Baehr, Managing Director of the CoinDesk Index, said that if the US Congress passes the "CLARITY Act," prices of cryptocurrencies such as Bitcoin may experience significant volatility. The purpose of this act is to establish a clear regulatory framework for digital assets, and it was passed by the US House of Representatives in July 2025 and is currently under review by a Senate committee. Reports suggest that the next round of discussions between the White House and cryptocurrency institutions on stablecoin income is scheduled for February 10th. Baehr stated that the passage of this act "will be a major catalyst for the cryptocurrency market, perhaps the biggest catalyst," but "the market's expectations for the final implementation of this act are currently not high." Kishida Fumio's victory: Yen weakens, Asian stocks expected to start the year on a positive note With Japanese Prime Minister Kishida Fumio's historic victory in the elections, risk assets may continue to warm up this week. With expectations of monetary loosening under the leadership of Kishida, the yen weakened slightly on Monday, and Asian stocks are expected to open higher this week. According to NHK's statistics, Japan's ruling Liberal Democratic Party won an absolute majority of more than two-thirds of the seats in the Lower House, resulting in the yen-dollar exchange rate falling to 157.74 at one point. Stock index futures indicate that benchmark indices in Japan and Hong Kong will rise. The US futures market also opened higher on Monday. Gold prices returned to above $5,000 per ounce; with tensions easing in the Middle East, Brent crude oil briefly fell by 1.5%. Analysts say that the results of the Japanese elections have strengthened expectations for fiscal easing, and continued to put pressure on the yen, as investors prepare for what is known as the "Kishida trade" to dominate the market on Monday. This result also set a positive tone for global assets at the start of the week, continuing the trend of increased risk appetite driven by resilient US data and Wall Street rebounds. Tony Sycamore, an analyst at IG in Sydney, said that traders are taking advantage of last week's selling opportunity to buy some cheap stocks, extending rotation trading from tech stocks to cyclical sectors. He added that the tailwinds from Wall Street and the Kishida trade mean that "at least in the very short term, we will see a good period of risk appetite trading in Asian stocks." However, after the voting ended, Kishida Fumio made his first policy comments, saying that despite his ruling party's overwhelming victory, he remains cautious about fiscal policies and the reduction of consumption tax. Kishida emphasized the importance of fiscal sustainability and tried to alleviate investors' concerns about his spending plans. "We will accelerate discussions on reducing the consumption tax," Kishida told reporters, and said that if consensus is reached, relevant tax reform bills will be submitted to the Diet. In a television program, she pointed out that the Liberal Democratic Party's election platform proposal for a "two-year exemption policy on food consumption tax without relying on additional debt" had gained public support, and the government will work on it based on this premise. "The consumption tax is an extremely important issue. We will maintain a flexible attitude, listen to various opinions, and strive to reach a final solution as soon as possible," said Japanese Finance Minister Kato Kparmancinyi in a late-night television program last Sunday, saying that his plan is to explore financing schemes that do not rely on debt to fill the deficit, and to push forward with this plan within two years."