©Reuters. A woman walks past a man examining an electronic board showing Japan’s Nikkei average and stock prices outside a broker, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo
A look at the future of European and global markets from Ankur Banerjee
The red-hot start to 2024 for the United States shows no signs of stopping, with the Japanese benchmark hitting another 34-year high on Tuesday as the yen wobbles towards the closely watched level of 150 per dollar.
The Nikkei has broken out of multi-decade highs almost every other day this year, slowly reaching the record high of 38,957 hit on the last trading day of 1989.
The benchmark hit 37,930 on Tuesday, its highest level since February 1990, and is on track to post a 13% gain for the year. And that’s after a 28% surge in 2023 that made it Asia’s best-performing major stock market.
The investment thesis remains the same: low valuations and changes in corporate governance, making the market attractive to foreign investors even after they poured 6.3 trillion yen ($42.1 billion) into Japanese stocks last year .
But this year has also brought strong earnings results, just as the yen is moving back towards the ever-crucial 150 per dollar level. The authorities began to target the market to stem the fall of the yen.
With China closed this week for the Lunar New Year holiday, trading in Asia is likely to remain muted, although elections in Indonesia will take center stage on Wednesday and could cause some market turbulence.
The tortuous Asian session appears to be giving way to a gloomy open in Europe, judging by futures markets. With the pan-European close to a two-year high, investors may be looking to make some profits.
The US inflation report will be the main event of the day and will offer clues as to the direction rates are going.
While traders have sharply scaled back their expectations for how much the Fed will cut rates this year and now expect cuts of 111 basis points, the question is when – and not if – the US central bank will initiate an easing cycle.
But before that, UK average weekly wages data will hold traders’ interest and help assess the health of the labor 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 the pound emerging as a carry trade target.
Key developments that could affect markets on Tuesday:
Economic events: UK average weekly earnings for the three months to December, UK ULO unemployment rate for December
($1 = 149.5300 yen)
(By Ankur Banerjee; Editing by Edmund Klamann)