Japan stocks hit 34-year high, markets calm before US inflation data
Bitcoin stabilised after spiking when an unauthorised post from the U.S. Securities and Exchange Commission’s X account said it had approved bitcoin exchange-traded funds.
Japan’s Nikkei – which had its best year in a decade in 2023 – climbed 2% to break above 34,000 for the first time since 1990. Exporters led the charge, helped by a softening yen after data showed Japanese real wages shrank for a 20th month in November.
Futures for the U.S. S&P 500 were flat after the index dipped 0.15% on Tuesday, as investors also waited for big U.S. banks to kick off earnings season on Friday. Nasdaq 100 futures were 0.16% higher.
“Japan is really interesting,” said Duncan MacInnes, an investment director at British firm Ruffer. “The problems have been corporate governance, which is definitely improving, (and) it has tended to be a very cyclical market, so it gets hit especially hard when the market turns down.”
The pan-European Stoxx 600 index was last down 0.2%, while Britain’s FTSE 100 was 0.32% lower and Germany’s DAX index was unchanged.
U.S. and European markets surged at the end of 2023 as inflation cooled quicker than expected and central banks struck a softer tone, encouraging investors to bet on big rate cuts this year. The optimism about falling borrowing costs has waned slightly in January and the S&P 500 is down around 0.3% so far after rallying 24% last year.
The index which tracks the U.S. dollar was very slightly lower. The U.S. currency has risen around 2% since hitting a five-month low in late December.
Bitcoin was last down 1.2% at $45,558 after spiking as high as $47,897 on the false reports of ETF approvals. The SEC said it had not yet approved a spot bitcoin ETF and that someone had accessed its X social media account without authorisation.
INFLATION IN FOCUS
The crucial event for markets this week is U.S. consumer price index inflation data. Economists polled by Reuters see year-on-year inflation at 3.2% in December, up from 3.1% in December. But they think core inflation likely fell to 3.8%, its lowest since mid-2021, from 4%.
Interest rate futures are pricing around 140 basis points of U.S. rate cuts this year. The probability of a move in March has been pared somewhat to a still-high 68%.
Benchmark 10-year Treasury yields were last down 2 basis points in European trading on Wednesday at 3.999%. They move inversely to prices and have risen this year after plunging in November and December.
“Market pricing… has gotten a little bit ahead of itself,” Jeff Klingelhofer, co-head of investments and managing director at Thornburg Investment Management, said on Wednesday.
“If you look at history – five (25 bp) cuts is very consistent with a recession, but markets aren’t pricing in a recession.”
Geopolitical tensions were also on the radar as disruptions in the Red Sea and a production outage in Libya raised oil prices, and an election looms in Taiwan.
Brent crude oil futures rose 1.9% on Tuesday and were up 0.18% to $77.73 a barrel early on Wednesday. [O/R]
The euro was up 0.14% at $1.095, while the dollar was 0.4% higher against the yen.