SYDNEY, Nov 20 — Japanese shares climbed to highs not seen since 1990 today as strong earnings and offshore demand fuelled a three-week winning streak, while other Asian markets were more mixed with eyes fixed on the US rate outlook.
Japan’s Nikkei added another 0.6 per cent to break its September peak and bring its gains for the month so far to a whopping 9.3 per cent.
Financial shares led the gains on Monday as investors prepare for an eventual end to negative rates, while auto makers have been benefiting from a weak yen and high exports.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1 per cent, having climbed 2.8 per cent last week to a two-month high.
The Black Friday sales will test the pulse of the consumer-driven US economy this week, while the Thanksgiving holiday will make for thin markets.
There were media reports Israel, the United States and Hamas had reached a tentative agreement to free dozens of hostages in Gaza in exchange for a five-day pause in fighting, but no confirmation as yet.
S&P 500 futures eased 0.1 per cent and Nasdaq futures lost 0.2 per cent. The S&P is now up nearly 18 per cent for the year and less than 2 per cent away from its July peak.
Yet analysts at Goldman Sachs note the “Magnificent 7” mega cap stocks have returned 73 per cent for the year so far, compared with just 6 per cent for the remaining 493 firms.
“We expect the mega-cap tech stocks will continue to outperform given their superior expected sales growth, margins, re-investment ratios, and balance sheet strength,” they wrote in a note. “But the risk/reward profile is not especially compelling given elevated expectations.”
Tech major Nvidia reports quarterly results on Tuesday, and all eyes will be on the state of demand for its AI related products.
The flow of US economic data turns to a trickle this week, but minutes of the Federal Reserve’s last meeting will offer some colour on policy makers’ thinking as they held rates steady for a second time.
A lot priced in
Markets have all but priced out the risk of a further hike in December or next year, and imply a 30 per cent chance of an easing starting in March. Futures also imply around 100 basis points of cuts for 2024, up from 77 basis points before the benign October inflation report shook markets.
That outlook helped bonds rally, with 10-year Treasury yields down at 4.45 per cent having dropped 19 basis points last week and away from October’s 5.02 per cent high.
It also dragged the US dollar down almost 2 per cent on a basket of currencies and helped the euro up to US$1.0900 having jumped 2.1 per cent last week.
The dollar even lost ground to the low-yielding yen, last sitting at 149.88 and short of its recent top of 151.92. Futures data showed speculative accounts had expanded their short yen positioning to the highest level since April 2022, suggesting a risk those positions could get squeezed out.
Closely watched surveys of European manufacturing are due this week and any hint of weakness will encourage more wagers n early rate cuts from the European Central Bank.
“These surveys will be very important around the Euro area services sector given the sharp deterioration seen recently,” said analysts at NAB. “If another soft print eventuates, expect pricing for ECB cuts to extend beyond the current 100bps of cuts being priced for 2024.”
Markets imply around a 70 per cent chance of an easing as soon as April, even though many ECB officials are still talking of the need to keep policy tight for longer.
Sweden’s central bank meets this week and may hike again, given high inflation and the weakness of its currency.
In commodity markets, oil rebounded from four-month lows on Friday amid speculation Opec+ will extend, or increase, its production cuts into next year.
Brent nudged up 2 cents to US$80.63 a barrel, while US crude firmed 5 cents to US$75.94 per barrel.
Gold was slightly lower at US$1,977 an ounce, having climbed 2.2 per cent last week. — Reuters