Nikkei soars as investors await US inflation data

London/Singapore — Japanese stocks hit a 34-year high on Wednesday while global equities, the dollar and bonds held steady before US inflation data on Thursday.

Bitcoin stabilised after spiking when an unauthorised post from the US Securities and Exchange Commission’s X account said it had approved bitcoin exchange traded funds.

Japan’s Nikkei — which recorded its best year for a decade in 2023 — climbed 2% to break above 34,000 points 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.

“Japan is really interesting,” said Duncan MacInnes, an investment director at UK firm Ruffer. “The problems have been corporate governance, which is definitely improving. 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 flat in early trading, while London’s FTSE 100 was 0.19% lower and Germany’s DAX index was up 0.2%.

Futures for the S&P 500 were up 0.19% after the index dipped 0.15% on Tuesday, as investors waited for the inflation figures and for the start of company earnings season. Nasdaq 100 futures were 0.37% higher.

US and European markets surged at the end of 2023 as inflation cooled more quickly 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 so far in January and the S&P 500 is down about 0.3% after rallying 24% last year.

The index that tracks the dollar was flat. The greenback has risen about 2% since hitting a five-month low in late December.

Bitcoin was last 1.3% lower at $45,540 after jumping as high as $47,897 on the false reports of ETF approvals. The SEC said it hadn’t 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 US CPI data on Thursday, which could see traders adjust their bets on rate cuts.

Economists surveyed by Reuters see year-on-year inflation at 3.2% in December, up from 3.1% in November. Still, they forecast core inflation fell to 3.8%, its lowest since mid-2021, from 4%.

Interest rate futures are pricing about 140 basis points of US rate cuts this year, though the probability of a move in March has been pared somewhat to a still-high 68%.

“Market pricing … has gotten a little bit ahead of itself,” Jeff Klingelhofer, co-head of investments and MD at Thornburg Investment Management, told journalists on Wednesday.

“If you look at history — five (25 basis-point) cuts is very consistent with a recession, but markets aren’t pricing in a recession.”

Benchmark 10-year Treasury yields were last down 3 basis points at 3.991%, in European trading on Wednesday. Yields move inversely to prices and have risen this year after plunging in November and December.

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 0.4% to $77.91 a barrel early on Wednesday.

The euro was 0.14% firmer at $1.095, while the dollar was 0.3% stronger against the yen.

Reuters