Strong Wall Street pushes Nikkei towards record high

Sydney — Japan’s Nikkei charged towards a record high on Friday, helped higher by a buoyant Wall Street after a big fall in US retail sales revived the chance of a June rate cut, which weighed on the dollar.

Nikkei surged 1.4% to 38,678 points, just within a whisker of the record high of 38,957 points hit in 1989 that marked the peak of Japan’s “bubble economy.”

The index is up 4.8% for the week, the third consecutive week of gains, bringing the year-to-date gains to a staggering 15.6%.

Elsewhere, Asian shares mostly tracked Wall Street higher. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3% and was headed for a 1.4% weekly gain.

Figures on Thursday showed that Japan and Britain slipped into recession at the end of 2023, and US retail sales in January fell much more than expected. But the upshot of that could be relatively looser monetary policy.

“I think the demand picture is certainly starting to fracture in some of the developed market economies,” said Tony Sycamore, market analyst at IG. “So it does bring forward the idea of rate cuts.”

“One by one, the dominoes are starting to fall. The UK and Japan fell yesterday. Obviously, there’s a long way to go for the US to fall into recession because their numbers have been pretty good. Europe you know it could be the next to go. And China’s not great.”

Nomura on Thursday forecast the Nikkei would reach 40,000 points by the end of the year, citing reasons such as an end to deflation in Japan, global investment shifting away from dependence on Chinese equities and improvement in Japanese corporate governance.

Overnight, data showed the US retail sales fell by 0.8% in January, the sharpest drop in 10 months, confounding expectations of a small dip of 0.1%.

Markets moved to fully price in a rate cut from the Federal Reserve in June, reversing some of the price action after a stronger-than-expected US inflation report prompted traders to give up bets for early rate relief.

That cheered Wall Street with the S&P 500 gaining 0.6%, the Nasdaq Composite up 0.30% and Dow Jones Industrial Average firming 0.91%.

The repositioning in interest rate expectations weighed on the dollar, which lost 0.4% against its peers overnight and was last at 104.36. Traders are awaiting producer price index (PPI) data later in the day for more clues on Fed policy.

The yen caught some respite from the dollar’s retreat and was last at ¥149.9 to the dollar. It gained 0.4% overnight to move away from the critically watched ¥150 level that could invite possible Japanese intervention.

Treasuries recovered some of the losses from the hotter-than-expected consumer price index (CPI) figures earlier in the week. The yield on benchmark 10-year notes was little changed at 4.2496%, after slipping three basis points (bps) overnight. It was still up 6bps for the week.

Two-year treasury yields edged 2bps higher to 4.5930% and were up 10bps for the week.

Oil prices were mixed on Friday after jumping the previous session. The International Energy Agency (IEA) on Thursday flagged slowing demand growth this year.

Brent eased 0.2% to $82.73, while US crude edged 0.1% lower to $77.98 a barrel.

The spot gold price was flat at $2,003.09.