Marketmind: Nikkei keeps roaring while yen teeters

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Marketmind: Nikkei keeps roaring while yen teeters © Reuters. A woman walks past a man examining an electronic board showing Japan’s Nikkei average and stock quotations outside a brokerage, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo

A look at the day ahead in European and global markets from Ankur Banerjee

The blistering start to 2024 for the shows no signs of stopping, with the Japanese benchmark scaling yet another 34-year peak on Tuesday as the yen teeters towards the closely watched 150 per dollar level.

The Nikkei has been breaching multi-decade peaks almost every other day this year, slowly making its way to the record high of 38,957 touched on the final trading day of 1989.

The benchmark on Tuesday hit 37,930, its highest since Feb. 1990, and is on course to clock a 13% gain for the year. And that’s after the 28% surge in 2023 that made it Asia’s best performing major stock market.

The investment thesis remains the same: low valuations and corporate governance changes, making the market attractive for foreign investors even after they poured 6.3 trillion yen ($42.1 billion) into Japanese equities last year.

But this year has also brought strong earnings results at the same time the yen is wobbling back towards the always crucial 150 per dollar level. Authorities have begun jawboning the market to brake the yen’s slide.

With China closed this week for the Lunar New Year holiday, trading in Asia is likely to be muted, although elections in Indonesia will take centre stage on Wednesday and could cause some market ructions.

A meandering Asian session looks to be giving way to a dour open in Europe, judging from the futures markets. With the pan-European near a two year high, investors could be looking to take some profits.

The U.S. inflation report will be the main event of the day and will offer clues as to where rates are headed.

While traders have drastically dialled back their expectations of how much the Fed will cut rates this year and now expect 111 basis points of cuts, it’s a case of when – not if – the U.S. central bank will start an easing cycle.

But before that, data on UK average weekly wages will hold traders’ interest and help to gauge the health of the labour market, as well as whether inflationary pressures in the market are cooling.

The Bank of England has been adamant that inflation is too far above its 2% target to risk a premature cut, with sterling emerging as a carry trade target.

Key developments that could influence markets on Tuesday:

Economic events: UK average weekly earnings three months ended December, UK ULO unemployment rate for December

($1 = 149.5300 yen)

(By Ankur Banerjee; Editing by Edmund Klamann)

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