LDN - Business

Japanese stocks outshine Europe and U.S. before key inflation data

[February 13, 2024] By Harry Robertson and Ankur Banerjee

LONDON/SINGAPORE (Reuters) -Japanese shares touched a 34-year peak on Tuesday, while European stocks and S&P 500 futures fell as investors waited for a U.S. inflation report that could shape Federal Reserve policy.

Treasuries and the dollar were little changed before the inflation numbers. Bitcoin remained at around $50,000 after crossing the threshold for the first time in over two years thanks to inflows into exchange-traded funds backed by the cryptocurrency.

Japan's Nikkei climbed to 38,010 on Tuesday, not far from the record high of 38,957 the benchmark touched in 1989. It has gained more than 13% so far this year after rising 28% in 2023.

"U.S. yields have moved up year to date," said Max Kettner, chief multi-asset strategist at HSBC. "In the absence of any kind of meaningful tightening from the Bank of Japan that really hurts the Japanese yen, (which) helps the export-sensitive Japanese equity market."

European stocks slipped as investors turned cautious before the U.S. data, with the continent-wide Stoxx 600 index down 0.51% after rising 0.54% on Monday.

Germany's DAX stock index was 0.57% lower. It rose to just shy of a record high on Monday on the back of improving investor sentiment driven by hopes of interest rate cuts.

Futures for the U.S. S&P 500 fell 0.41%, while Nasdaq futures were down 0.69%. The S&P 500 notched another intraday record high above 5,000 on Monday, boosted by rate-cut bets and a handful of technology stocks.

"Markets have had a nice run, so (they) are taking a little bit of money off the table ahead of what could be important data," said Samuel Zief, head of global FX strategy at JPMorgan Private Bank.

Britain's FTSE 100 slipped 0.29% while the pound climbed to its highest since August against the euro after data showed wage growth was stronger than expected in the last three months of 2023.

January U.S. inflation data could jolt markets at 1330 GMT (8.30 a.m. ET). Economists polled by Reuters expect the consumer price index (CPI) to rise 2.9% year-on-year, down from 3.4% in the previous month.

[to top of second column]

Passersby walk past an electric screen displaying a graph showing Japan's Nikkei share average movements outside a brokerage in Tokyo, Japan February 13, 2024. REUTERS/Issei Kato

A higher-than-expected number could nudge yields higher and further strengthen the dollar, said Charu Chanana, head of currency strategy at Saxo.

Market pricing shows investors think there's currently a 70% chance of an interest rate cut by May, "and there appears room to push that further to June with markets remaining sensitive to hawkish surprises for now," Chanana said.

Investors have lowered their bets on rate cuts from the biggest central banks in recent weeks as U.S. data has come in stronger than expected. They now see roughly 110 basis points of cuts by the end of the year, down from around 145 basis points at the start of February.

The yield on 10-year Treasury notes was unchanged at 4.166%. The dollar index, which measures the U.S. currency against six rivals, was little changed at 104.13, while the euro was roughly flat at $1.0774.

The Japanese yen, which is sensitive to U.S. rates, was last at 149.4 per dollar, not far from the closely watched 150 level that analysts said would likely trigger further comments from Japanese officials in an attempt to support the currency. [FRX/]

Japan's currency has fallen around 6% against the dollar this year as investors have pushed back their expectations for when the BOJ will end its ultra-loose monetary policy.

In commodities, Brent crude oil futures were at $82.56, up 0.68% on the day. [O/R]

(Reporting by Harry Robertson in London and Ankur Banerjee in Singapore; Editing by Sonali Paul, Bernadette Baum and David Evans)

Back to top