Morning Bid: Tokyo takes off

• Takaichi's Liberal Democratic Party secured over two-thirds of parliament seats, clearing the way for increased spending and tax cuts that drove the Nikkei to surpass 56,000 for the first time
• U.S. chipmakers rallied sharply Friday with Nvidia, AMD and Broadcom all jumping over 7%, while the Russell 2000 gained 3.5% as investors rotated into smaller-cap stocks
• Investors are focused on upcoming U.S. economic data including retail sales and CPI to gauge whether the economy remains soft enough to support hopes for three rate cuts in 2026

Market Summary: Tokyo Takes Off on Takaichi Election Victory

Key Developments:

Japanese Prime Minister Sanae Takaichi's Liberal Democratic Party secured a decisive victory with over two-thirds of lower house parliamentary seats in Sunday's snap election. The mandate for expansionary fiscal policy drove the Nikkei 225 nearly 4% higher on Monday, surpassing 56,000 for the first time and reaching a new all-time high.

Market Movements:

• Japan: The yen and Japanese government bonds remained broadly stable, suggesting Takaichi's fiscal agenda was already priced in. Investors now await implementation details while watching the critical 160 per dollar level for potential government FX intervention.

• U.S. Markets: Wall Street futures held steady after Friday's chipmaker-led rally, which saw the S&P 500 and Nasdaq gain approximately 2%. Nvidia, AMD, and Broadcom surged over 7% as software companies recovered from AI-related losses earlier in the week.

• Rotation Dynamics: The Russell 2000 small-cap index outperformed with a 3.5% Friday gain, indicating rotation away from mega-cap tech stocks. Amazon declined Friday after announcing capex would rise over 50% in 2026, highlighting concerns about AI hyperscalers' spending plans.

• Sentiment: The VIX volatility index fell for the first time in three days Friday, suggesting improved market sentiment. Gold and silver advanced Monday after strong Friday rebounds.

Week Ahead:

Investors focus shifts to critical U.S. economic data, including January's delayed employment report, retail sales, and CPI figures. Markets will assess whether the economy shows sufficient weakness to support continued Fed rate cut expectations. Fed officials Waller, Miran, and Bostic are scheduled to speak.