Nikkei leads Asian markets higher

Sydney — Asian share markets firmed on Monday as the Nikkei reached another new high and investors braced for a week packed with central bank events and key data that will refine market wagers for when interest rates will start falling.

All eyes will be on Federal Reserve chair Jerome Powell when he testifies before legislators on Wednesday and Thursday, though analysts assume he will stay in wait-and-see mode on policy given recent upside surprises on inflation.

The February payrolls report on Friday could also shift the calculus with forecasts favouring a still-solid rise of 200,000 after January’s barnstorming 353,000 jump.

The European Central Bank (ECB) meets on Thursday and is considered certain to keep rates at 4.0%, but also lower its outlook for inflation in a nod to eventual cuts.

“The focus will be on the changes to the macro projections and on the tone, which we expect to be dovish but cautious — in a risk-management posture that should point to June for the first move lower in rates,” wrote analysts at NatWest Markets in a note.

They said “100 basis points [bps] still seems the right amount of cuts” for 2024. “While the ECB is not pressed to act with urgency and may prefer to start with a 25bps clip, instead of our central scenario of a first 50bps cut in June.”

The Bank of Canada is likewise expected to stay on hold this week, with a first cut seen in June or later.

Other events of note include President Joe Biden's State of the Union address on Thursday, the Super Tuesday US primaries and China’s National People’s Congress (NPC) meeting starting on Tuesday which might flag new stimulus measures.

Chinese blue chips were off 0.2% awaiting some concrete news on any measures.

Nikkei heads north

MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.4%, after snapping a five-week winning streak with a slight drop last week.

Japan’s Nikkei climbed 0.8% to break 40,000 for the first time, having risen for five consecutive weeks. Tech darling Tokyo Electron has surged 55% since the start of the year.

An upbeat report on fourth quarter capex out Monday suggested GDP could be revised to positive from negative, meaning Japan was not in recession after all. That added to speculation a strong wage round could lead the Bank of Japan (BOJ) to end negative rates in April.

Japan’s government is considering declaring an end to deflation, reported Kyodo news agency, which would be another marker on the road to policy tightening.

Eurostoxx 50 futures added 0.2%, while FTSE futures dipped 0.1%.

S&P 500 futures and Nasdaq futures were trading near flat, having made record closing highs on Friday on upbeat earnings and enthusiasm for all things artificial intelligence (AI).

BofA analyst Savita Subramanian now sees the S&P 500 pushing on to 5,400, thanks to solid earnings, though there is a risk of a correction given how far the market has come.

“The era of lower quality growth where cheap capital and globalisation contributed to margins is over,” says Subramanian. “Now it’s time for sustainable efficiency and productivity gains supported by automation and AI.”

In currency markets, the dollar had been weighed by some soft US economic data, while the Japanese yen firmed ahead of Tokyo consumer price data on Tuesday that is expected to show inflation sprang higher in February.

The dollar stood at ¥150.11, having peaked at ¥150.85 last week, while the euro steadied at $1.0842 after bouncing from a low of $1.0796 last week.

The US data surprise had helped gold to a two-month top and the metal was last trading steady at $2,082/oz.

Oil prices firmed after Opec+ members led by Saudi Arabia and Russia agreed on Sunday to extend voluntary oil output cuts of 2.2-million barrels a day into the second quarter.

Brent rose 13c to $83.68 a barrel, while US crude gained 2c to $79.99 a barrel.

Reuters