Strong dollar and Wall Street help Tokyo’s Nikkei to 27-year high

Shanghai — Japan’s Nikkei hit a 27-year high on Friday, taking heart from a boost for the dollar and strong gains on Wall Street overnight.

The greenback got a lift after after Federal Reserve chairman Jerome Powell said he did not expect a near-term recession.

Japan’s Nikkei stock index rose as high as 24,286.1 points, reaching its highest level since November 1991, on renewed optimism about the global economy and hope for a boost to exporters’ earnings from a weaker yen. It was last up 1.5%.

Shares elsewhere in Asia also rose, with MSCI’s broadest index of Asia-Pacific shares outside Japan adding 0.1%.

Shares in China were higher ahead of a week-long national holiday. Blue chips gained 1.1% and the country’s main Shanghai composite index was 0.9% higher.

“Even though we’re at historic highs across a group of global indices, the interesting thing today and yesterday is that it’s translating through to dollar strength,” said Nick Twidale, chief operating officer at Rakuten Securities Australia.

“Over the last couple of months, dollar strength and equities haven’t gone hand in hand, but I think because of the Fed move we’ve seen that change in dynamic,” he said.

Australian shares rose 0.4%, while Seoul’s Kospi gave up ground, falling 0.3% after hitting three-month highs on Thursday.

The Dow Jones industrial average rose 0.21% to 26,439.93 on Thursday, the S&P 500 index gained 0.28% to 2,914 and the Nasdaq composite index added 0.65% to 8,041.97.

S&P E-mini futures rose 0.1% on Friday to 2,923.5.

Clouds on the horizon

After the Fed raised rates on Wednesday, for the third time this year, Powell said on Thursday that the US does not face a large chance of a recession in the next two years and the Federal Reserve plans to keep gradually raising interest rates.

But Citi analysts cautioned that not all data was reassuring.

“The Citi US economic surprise index has been pushed into negative territory by disappointing housing data in the United States,” they wrote in a note.

“The latest data confirms that the housing market continues to be less than ideal. Pending home sales, a leading indicator, declined to the lowest level in seven months.”

Pending home sales fell 1.8% month on month, against consensus expectations for a 0.5% drop, they said.

The bullish outlook for the US economy continued to lift the dollar, which was up 0.2% against the yen at ¥113.54 , and earlier touched a new 2018 high of ¥113.63.

“There are a couple of reasons that the dollar’s going to remain popular,” said Twidale. “One’s interest rate differentials, and the other is safe haven status while we’ve got these global trade concerns. It’s nothing new, but I think we could see an acceleration.”

The euro rose less than 0.1% to 1.1647 after dropping more than 0.8% on Thursday on uncertainty over the Italian government’s budget deficit to gross domestic product target.

Italy ultimately defied EU requirements that it cut its deficit, targeting a budget deficit at 2.4% of gross domestic product for the next three years.

Markets had expected Italy’s economy minister, Giovanni Tria, to resist a spending push by Italy’s coalition government, which took power in June.

The dollar index, which tracks the greenback against a basket of six major rivals, was up 0.07% at 94.959.

US treasury yields ticked lower. The yield on benchmark 10-year treasury notes was at 3.0518% on Friday, compared with its US close of 3.055% on Thursday.

The two-year yield, closely tied to expectations of higher Fed fund rates, touched 2.8269% compared with a US close of 2.835%.

US crude was 0.2% higher at $72.28 a barrel. Brent crude was mostly flat at $81.73 a barrel.

Gold was slightly higher after tumbling 1% on Thursday on strength in the dollar, which made bullion more expensive for buyers using other currencies.

Spot gold was up 0.16% at $1,184.28 an ounce.

Reuters