Investors have been selectively reallocating their capital into technology stocks following recent selling pressure associated with concerns over inflated AI valuations. This shift has contributed to a stabilization of market sentiment and has heightened expectations for a stronger conclusion to the year for equities.

Equity markets in Asia experienced a significant increase on Monday, continuing their upward trajectory in a holiday-shortened week. This rise was driven by technology stocks that mirrored the performance of their U.S. counterparts, as investors cautiously re-engaged with risk assets following a recent decline associated with concerns over artificial intelligence valuations. The MSCI AC Asia Pacific increased by 1%, driven largely by the significant contributions from major semiconductor manufacturers Taiwan Semiconductor Manufacturing and Samsung Electronics. Markets in Taiwan and South Korea, characterized by a significant technology presence, experienced gains, contributing to overall regional advancements. Equities in Japan and Hong Kong experienced an uptick, indicative of a wider resurgence in risk appetite. Japan’s TOPIX concluded the trading session with an increase of 0.6%. The increasing enthusiasm for Chinese semiconductor firms has contributed to a rise in activity within the initial public offerings market in China and Hong Kong, thereby bolstering regional equities.

While equities experienced an upward movement, Japan’s bond market continued to face significant pressure. Government bonds continued to decline after the Bank of Japan’s decision last Friday to increase its policy rate by 25 basis points to 0.75%, marking the highest level since 1995. The yield on Japan’s 10-Year bond, which increased by 6.9 basis points last week to surpass 2%, ascended further by 6.4 basis points on Tuesday, reaching approximately 2.08%, marking its highest level since 1999. The recent selloff has been intensified by a resurgence of weakness in the yen, which declined by 1.4% against the U.S. dollar on Friday, notwithstanding the rate hike. Japan’s chief currency official Atsushi Mimura stated on Tuesday that authorities expressed “deep concern” regarding the abrupt and unilateral movements in currency following the policy decision. The depreciation of the yen has sparked conjecture regarding the potential necessity for the Bank of Japan to implement tighter monetary policy once more, thereby exerting additional strain on Japanese government bonds.

Commodities attracted attention, particularly as metals spearheaded the advances. XAU/USD and Silver Futures experienced significant increases, reaching unprecedented levels due to rising geopolitical tensions and anticipations of additional cuts to U.S. interest rates. At 9:50, gold futures experienced an increase of 1.3% for the day, trading at 4,446.30, while silver futures rose by 2.2%, with a trading price of 68.97. Copper Futures reached a new all-time high, highlighting robust demand alongside supply constraints in the industrial metals sector. Crude Oil WTI Futures prices experienced an uptick following President Donald Trump’s escalation of a blockade on Venezuela, thereby amplifying apprehensions regarding potential supply disruptions. Crude oil futures have experienced an increase of 0.9% today.

In the near term, the economic calendar appears sparse; however, several U.S. data releases are poised to capture interest. Investors are set to receive a delayed reading of third-quarter GDP later today; however, it is important to note that this data is retrospective and reflects conditions prior to the government shutdown. December consumer confidence figures from the Conference Board will be more pertinent for markets, particularly following the decline in sentiment in November, which reached its lowest point since the upheaval associated with Liberation Day in April.

In the absence of significant catalysts, certain strategists are pondering whether markets are poised for a conventional Santa Claus rally or if they may be on the brink of experiencing a recurrence of historical volatility. Deutsche Bank strategist Jim Reid observed that although the pre-Christmas period typically exhibits tranquility, historical patterns reveal notable exceptions. In 2018, a confluence of hawkish Federal Reserve communications, lackluster global economic indicators, escalating U.S.-China trade disputes, and a government shutdown precipitated a significant market downturn, resulting in a 7.7% decline in the S&P 500 over the four trading sessions leading up to Christmas. The potential for markets to replicate that episode or to experience a more stable year-end rally is a matter of speculation for investors.