Capital Idea: Market wrap, 16th January

• TSMC earnings boosts tech stocks, US indices

• Commodity volatility persists on geopolitical risks

• The markets keep an eye out for Yen intervention

Solid results from TSMC stabilized the rotation out of tech without undermining the bid for cyclicals that has characterised the start of the year’s trade. The results implied a continued strong demand for chips and a robust sales pipeline, reflecting well on the overall artificial intelligence build-out. The numbers don’t completely assuage fears about overinvestment. In fact, semiconductor company results are likely one of the last places you’d see evidence of excess capacity. That’s especially true as hyperscalers increasingly rely on leverage for data centre build-out. Nevertheless, the strong results were good for TSMC and that bled into the broader tech sector.

The most volatility remains in the commodity complex. At the highest level, the movements are driven by resource competition and a world of growing scarcity. From a micro standpoint, geopolitical risk, especially in Iran, is causing oil and precious metals to swing. Crude prices have pulled back on easing fears of an overthrow of the Iranian government and US military intervention in the country. The drop in precious metals was likely catalysed by the same theme, although the moves are more two way with the bullish drivers for precious metal demand much stronger and varied as traders eye $US100 per ounce and $US5000 per ounce for gold and silver respectively.

(Source: Trading View)
(Past performance is not a reliable indicator of future results)

The US Dollar is looking firmer to start the year. While technical in nature – a bounce back after a bad 2025 because of Fed rate cuts and the “sell America” trade – the resilience of the US economy is also a factor. Weekly US jobless claims data, along with some manufacturing surveys, were better than expected, lowering the implied probabilities of imminent Fed rate cuts. The jobless claims in particular pointed to a resilient labour market, with the number of claims for the week dropping to 198,000 and second lowest reading in roughly two years.

A focus in Asian trade remains on potential currency market intervention by Japan. The Yen softened overnight following reports the Bank of Japan plans to keep policy unchanged at its upcoming meeting. The news adds to downside pressures on the currency, with a looming election, called to gain a mandate for very expansionary fiscal policy, also a critical head wind. The markets may be daring Japanese policymakers to step in and defend the currency. Despite assurances to the contrary, the weakening Yen is very much fundamental in nature, meaning intervention is likely required if economic policy settings don’t change.