A look at the day ahead in U.S. and global markets from Mike

Dolan

As the week's tariff rollercoaster levels out a bit, Wall Street

stocks are tilting lower again - clouded by a poor reception for

Alphabet's results, lingering China tariff hike plans and fresh

interest rate rise speculation in Japan.

U.S. stock futures were back in the red ahead of

Wednesday's bell as shares in megacap Alphabet plunged

7% overnight. The drop came amid doubts about the Google

parent's cloud computing business, much like Microsoft last

week, and anxiety about its huge investment in artificial

intelligence - especially in the light of last week's DeepSeek

news.

Following the previous day's sideswipe from Beijing on an

anti-monopoly probe into Google there, Alphabet said it would

spend $75 billion on its AI buildout this year, 29% more than

Wall Street expected, and it missed its cloud revenue target.

Adding to the overnight pressure, shares in Advanced Micro

Devices ( AMD ) fell 9% after the company's AI chip revenue

failed to meet lofty expectations.

With a deluge of earnings updates across the world this

week, the news on global macro policy did not help either.

Japan's yen surged to its best levels of the year so

far after domestic wage numbers rekindled talk of another Bank

of Japan rate hike this year.

Japan's December inflation-adjusted real wages rose 0.6%

year-on-year thanks to a wintertime bonus bump, with government

officials expressing optimism that wage hike momentum is

growing.

"We will continue to raise interest rates and adjust the

degree of monetary support, if underlying inflation accelerates

toward 2% as we project," Kazuhiro Masaki, director-general of

the BOJ's monetary affairs department, told parliament.

As Chinese markets returned from the week-long lunar new

year holiday, there was a lot to unpack - not least this week's

10% U.S. tariff hikes on Chinese imports, planned retaliation

from Beijing by Feb. 10 and the DeepSeek AI developments.

But both mainland China and Hong Kong stock indexes fell on

Wednesday as prior day's hopes of a meeting between U.S.

President Donald Trump and China's President Xi Jinping to avert

the tariff war were doused. U.S. plans to slap tariffs on Canada

and Mexico were postponed for a month this week after similar

calls between Trump and the leaders of those countries.

Trump said late on Tuesday he was in no hurry to speak to

Xi. White House spokeswoman Karoline Leavitt told reporters a

Trump-Xi call still needed to be scheduled.

EMPLOYMENT NUMBERS

Adding to the tension, the U.S. Postal Service said it would

temporarily suspend parcels from China and Hong Kong as Trump

ended a trade provision this week used by retailers including

Temu and Shein to ship low-value packages duty-free to America.

And in the background, private sector business surveys

showed China's services activity expanded at a slower pace in

January, with the Lunar New Year holidays worsening employment.

The currency reaction was a bit more mixed, however. While

the onshore yuan, guided closely by the People's Bank of

China, was reset slightly weaker after the holiday break, the

offshore yuan strengthened for the second day.

The combination of yen and yuan gains weighed on the dollar

index more broadly.

And a retreat in U.S. Treasury yields dragged on

the greenback to boot, with the 10-year slipping back below

4.5%.

Treasury yields ebbed on a mix of trade war angst and the

latest employment update, which showed U.S. job openings falling

more than expected in December. That takes some of the perceived

heat out of the labor market and allows more wiggle room for the

Federal Reserve to keep easing policy.

"I continue to see a gradual reduction in the level of

monetary policy restraint placed on the economy as we move

toward a more neutral stance," Fed Vice Chair Philip Jefferson

said on Tuesday. "That said, I do not think we need to be in a

hurry to change our stance."

Two Fed cuts this year are virtually fully priced for the

year - resuming around mid-year.

In a big week for employment numbers, private sector

payrolls for January will be released by ADP later on Wednesday

and the national payrolls report is due on Friday.

Elsewhere, geopolitical tension added to trade war worries -

with Trump's statement on the United States taking over Gaza

confounding many who assumed he wanted to withdraw the country

from foreign conflicts and remove expensive U.S. military and

aid funds from around the world.

Much like the puzzlement over similar contradictions in

trade and currency policy, the statement left more confusion

about the road ahead.

Gold seemed the only real beneficiary of the

uncertainty and set another new record with gains of almost 10%

for the year so far.

In other corporate news, the Nikkei newspaper said Japan's

Nissan ( NSANF ) will call off merger talks with rival Honda ( HMC )

- abandoning a tie-up that would have created the

world's third biggest automaker. Nissan ( NSANF ) shares fell 4% and

Honda's ( HMC ) rose 8%.

Key developments that should provide more direction to U.S.

markets later on Wednesday:

* U.S. January private sector payrolls from ADP, Jan service

sector surveys from ISM and S&PGlobal, December international

trade balance; Canada Dec international trade

* Federal Reserve Vice Chair Philip Jefferson, Fed Board

Governor Michelle Bowma, Chicago Fed President Austan Goolsbee

and Richmond Fed chief Thomas Barkin all speak; European Central

Bank chief economist Philip Lane speaks in Washington

* U.S. corporate earnings: Qualcomm, Boston Scientific, Walt

Disney, Ford, News Corp, T Rowe Price, MetLife, Uber, Mckesson,

Coognizant, Corpay, Allstate, Emereson Electric, Align

Technology, Molina, STERIS, Bunge, Johnson Controls, etc

(By Mike Dolan, editing by XXXX

[email protected])