BOJ rate decision, RBA rate meeting

Japan’s finance minister, Shunichi Suzuki, said this year’s wage talks have produced big pay hikes because Japan is experiencing positive signs in the economy, according to a Reuters report.

Last week, initial estimates from Japan’s largest union, Rengo, indicated that major firms had agreed to a pay increase of 5.28% — the highest in 33 years.

The government will deploy various policies so that positive momentum in wage growth will continue, Suzuki told reporters, according to the Reuters report.

— Reuters, Lim Hui Jie

As concerns swirl about lofty stock market valuations and investors focus on AI companies, strategists at Berenberg see one sector as a relative bargain.

The investment bank pointed out that investors in that one sector outperformed the market by an average of 108% – or more than doubled their money – when they invested on three occasions in the past when valuations were similarly depressed as the current levels.

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— Ganesh Rao

One stock is a “promising AI investment” and set to be a “serious player” in a corner of the space, according to Brian Stutland of Equity Armor Investments.

“They are really starting to become very creative in the AI world,” Stutland, a portfolio manager at the firm, told CNBC’s “Street Signs Asia” this week.

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— Weizhen Tan

The stock market has been on an upwards tear since last fall, with all three major indexes notching new record closes already in 2024.

But there are already several signs that doubt is beginning to creep into market optimism, according to Deutsche Bank.

“When the rally is that fast, it’s always hard to maintain the speed of those gains. Moreover, there are signs that inflation is still proving persistent, with investors moving to price out the chance of rate cuts in response,” wrote macro strategist Henry Allen.

In a Monday note, Allen shared five signs of a potential narrative shift:

1. “For the first time since October, the S&P 500 has now posted 2 consecutive weekly declines.”
2. “There are clear signs that inflation is proving more persistent than expected a couple of months back.”
3. “More inflation has led investors to dial back their expectations for rate cuts this year.”
4. “The speed of the current equity rally has been very rapid, and history suggests it was always going to be hard to maintain that speed.”
5. “When inflation is already above target, then easier financial conditions risk leading to a hawkish reaction from central banks.”

— Lisa Kailai Han

An artificial-intelligence partnership between Apple and Alphabet would be a win for both companies, analysts said Monday.

A report from Bloomberg said Monday Apple was in talks with Alphabet to license Gemini, its suite of generative AI tools, for future iPhones. Apple has also had discussions with OpenAI, the report said.

“A partnership that can incorporate GenAl features faster into iPhones (software features in 2024) and incremental hardware features in 2025 would be a positive for both Apple and for the potential partner if Apple ends up with an agreement,” Bank of America analyst Wamsl Mohan said in a note Monday.

He sees an Al-driven multi-year upgrade cycle for Apple and the potential for gross margins to re-rate higher.

Meanwhile, Melius Research said a Google partnership would be a “reputational win” for the tech giant against Microsoft and OpenAI. Apple would get the bigger immediate win financially on a deal since it will allow it to take an asset-light approach to AI, analyst Ben Reitze said in a note Monday.

However, he wouldn’t to count Microsoft out of the story just yet.

“A bidding war for Apple’s digital real estate isn’t a bad thing for its shareholders,” he said.

Shares of Alphabet were up nearly 7% in midday trading, while Apple gained more than 2%.

— Michelle Fox

Markets will be looking past what the Federal Reserve does at its meeting this week and thinking more about what the future holds, according to Chris Larkin, the managing director of trading and investing at ETrade from Morgan Stanley.

“No one expects a rate cut on Wednesday, but after last week’s double-dose of hot inflation data, everyone will be wondering whether the Fed is rethinking a June cut,” Larkin said Monday.

Noting that the S&P 500 broke a record high for the ninth straight week, Larkin expects that “the market will need to like what it sees in the Fed’s statement on Wednesday, and get confirmation from (Fed Chair) Jerome Powell that two months of sticky inflation numbers won’t derail the Fed’s game plan.”

Futures market pricing is pointing to the first rate cut coming no sooner than June.

—Jeff Cox