LDN - Business

Japan stocks hit 34-year high, global markets calm before US inflation

[January 10, 2024] By Harry Robertson and Tom Westbrook

LONDON/SINGAPORE (Reuters) -Japanese stocks hit a 34-year high on Wednesday while global equities, the dollar and bonds held steady before U.S. inflation data on Thursday.

Bitcoin stabilized after spiking when an unauthorized post from the U.S. Securities and Exchange Commission's X account said it had approved bitcoin exchange-traded funds.

Japan's Nikkei - which had its best year for a decade in 2023 - climbed 2% to break above 34,000 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 British firm Ruffer. "The problems have been corporate governance, which is definitely improving, (and) 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 Britain's FTSE 100 was 0.19% lower and Germany's DAX index was up 0.2%.

Futures for the U.S. 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.

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

The index which tracks the U.S. dollar was flat. The U.S. currency has risen around 2% since hitting a five-month low in late December.

Bitcoin was last down 1.3% at $45,540 after spiking as high as $47,897 on the false reports of ETF approvals. The SEC said it had not yet approved a spot bitcoin ETF and that someone had accessed its X social media account without authorization.

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Passersby walk past an electric monitor displaying the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan October 4, 2023. REUTERS/Issei Kato/File Photo

INFLATION IN FOCUS

The crucial event for markets this week is U.S. consumer price index inflation data on Thursday, which could cause traders to adjust their bets on rate cuts.

Economists polled by Reuters see year-on-year inflation at 3.2% in December, up from 3.1% in December. But they think core inflation likely fell to 3.8%, its lowest since mid-2021, from 4%.

Interest rate futures are pricing around 140 basis points of U.S. rate cuts this year. 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 managing director at Thornburg Investment Management, told journalists on an outlook call on Wednesday.

"If you look at history - five (25 bp) 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 in European trading on Wednesday at 3.991%. They 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. [O/R]

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

(Reporting by Harry Robertson in London and Tom Westbrook in Singapore; Editing by Muralikumar Anantharaman and Tomasz Janowski)

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