Singapore — Japanese stocks hit a near 34-year high on Wednesday, while other Asian equities meandered close to one-month lows and bond markets traded cautiously ahead of US inflation data due this week.
Japan’s Nikkei — which had its best year for a decade in 2023 — climbed 1% in early trade to break above 34,000 for the first time since 1990.
Exporters led the charge, helped by a softening yen; the broader Topix also hit its highest since 1990.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5% to its lowest since mid-December.
Overnight, US stocks slipped modestly, as did treasury prices, while the dollar nudged higher. Bitcoin spiked after an unauthorised post from the US Securities and Exchange Commission’s X account said it had approved bitcoin exchange traded funds.
US equity futures were steady in the Asian morning and, after Australian inflation came slightly cooler than expected, focus was on US consumer price data due on Thursday.
Interest rate futures are pricing about 140 basis points (bps) of US rate cuts in 2024, compared with the Federal Reserve’s dot plot of 75bps. The probability of a move as early as March has been pared somewhat to a still-high 64%, and is likely to shift again depending on Thursday’s report.
“Markets are starting to come to the expectation that rate cuts in the US may be some way off. Guidance from members of the Federal Reserve monetary committee tend to favour cuts in the second half of the year,” ANZ analysts said in a note.
Forecasts are for core consumer inflation to rise 0.3% in December, pulling annual inflation down to 3.8% and its lowest since mid-2021.
Geopolitical tension was 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.
US and UK forces shot down 21 drones and missiles fired by Yemen-based Houthis on Tuesday into the Southern Red Sea towards international shipping lanes, the US military’s Central Command said.
Brent crude futures rose 1.9% on Tuesday and were up 0.1% to $77.68 a barrel early on Wednesday.
Bitcoin was last down 1% at $45,683 after spiking as high as $47,897 on the false reports of ETF approvals.
Trade in foreign exchange and fixed income markets was tentative ahead of the US inflation report.
Benchmark 10-year treasury yields rose 1.5bps overnight and were steady at 4.01% in Tokyo on Wednesday. The dollar held small gains, buying ¥144.72 and trading at $1.0927 to the euro.
The Aussie dollar was little moved at $0.6687 after data showing Australian inflation slowed to a near two-year low, since it reinforced market expectations interest rates would not need to rise any further.
“It’s now time for cuts, but global growth expectations don’t point to a global recession,” said analysts at TD Securities in a note to clients.
“Our global growth indicators have improved, suggesting further [US dollar] downside through [the first half]. However, it won’t be a straight line, especially as geopolitics will feature heavily on the market calendar this year and markets remain data dependent.”
Chinese lending figures are also due this week, with 2023 lending expected to have hit a record high as China keeps policy accommodative, though there is little sign of a shift in investor sentiment.
China’s blue-chip CSI300 index was flirting with a five-year low on Tuesday, while the Hang Seng dropped 0.7% to a one-month low and the yuan hit its weakest since Dec. 13.
“Despite cries that Chinese/Hong Kong equity is cheap, we see no signs that international managers are prepared to step in and buy these markets with any conviction,” said Chris Weston, head of research at brokerage Pepperstone.
“It seems the drip-fed approach to policy easing and support just isn’t cutting it and the market wants a shock-and-awe approach.”