©Reuters. FILE PHOTO: A passerby is reflected on an electronic screen displaying a graph showing recent average movements of Japanese Nikkei stocks and stock prices as the stock average hits a record high in Tokyo, Japan, February 26, 2024. REUTERS /Issei Kato/file Photo
By Stella Qiu
SYDNEY (Reuters) – It hit a new record high on Friday, supported by Wall Street’s rebound with a key U.S. inflation reading in line with expectations, while markets elsewhere in Asia were more subdued on the economic outlook yet uncertainties of China.
The Nikkei index gained 1.8% to a new record high, extending the previous month’s 7.9% surge, when it surpassed levels last seen in 1989. High-flying Australian shares also Resource content reached a record high and rose 0.3% on the day.
MSCI’s broadest index of Asia-Pacific shares outside Japan, however, fell 0.1%, weighed down by a 0.2% decline in the Hong Kong index. The Asian index is forecast for a weekly loss of 1%.
Data on Friday showed China’s industrial activity contracted for a fifth straight month in February, while expansion in the services sector accelerated, highlighting an uneven recovery for the world’s second-largest economy.
“The PMI is less reliable in February due to the Chinese New Year holiday making it difficult to get a clear picture of economic momentum,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“We need to wait for further macro data on retail sales and industrial production between January and February to get a clear view of the economy.”
Mainland Chinese markets have been choppy, with both bluechips and the index mostly stable on the first day of March. Investors are looking for further stimulus at next week’s key policy meeting.
Japan’s industrial activity shrank at the fastest pace in more than 3 1/2 years in February, a private sector survey showed on Friday.
Overnight on Wall Street, the financial market and the Nasdaq closed at historic highs. The personal consumption expenditure (PCE) price index, the Federal Reserve’s preferred gauge of inflation, rose 0.3% in January from the previous month. The core PCE price index rose 0.4%, as expected.
This has kept alive the prospects of an interest rate cut in June. Markets still see a 76% chance that the Fed will begin cutting interest rates in June, with a total easing of 82 basis points expected this year.
“The PCE data confirms the unhelpful January inflation surprise already predicted by previous CPI and PPI numbers,” said Taylor Nugent, senior economist at National Australia Bank (OTC:).
“We don’t think the disinflationary trend has stopped, but there is some support for the risk arising from residual seasonality issues in the fact that January’s increase extends into February as well.”
Further supporting sentiment, Fed speakers overnight reiterated that policymakers will review recent data that showed a pick-up in price pressures in January to focus on overall progress on inflation.
In Europe, inflation data in Germany, France and Spain all fell, mostly in line with expectations, which should bode well for Eurozone inflation data due later on Friday.
This caused the euro to drop to around $1.0809 after losing 0.3% overnight.
The yen slipped 0.2% to 150.23. It gained 0.5% overnight after Bank of Japan board member Hajime Takata said sustained inflation reaching 2% was already in sight.
However, BOJ Governor Kazuo Ueda later struck a more cautious tone, saying it was too early to conclude that the central bank’s 2% inflation target could be expected to be achieved sustainably.
Bonds rallied, relieved that US PCE data was no worse than expected. It held at 4.2639% after falling 4 basis points overnight. It jumped 29 basis points last week as markets rejected bets on early rate cuts.
The two-year Treasury bond yield, which reflects interest rate expectations, also remained unchanged at 4.6373%, after falling 4 basis points to 4.644%.
Oil prices rose on Friday. rose 0.4% to $82.21 a barrel, while gaining 0.3% to $78.47 a barrel.
The price was fixed at $2,043.99.