Morning Bid: Japanese stocks party like it’s 1990. An overview of Monday’s trading in European and international markets This holiday-shortened week has seen a mixed start for most of Asia. At the same time, Japanese stocks continued their bull run and reached levels not seen since 1990.
The Nikkei has increased by over 8% this month and about 29% yearly. Even if the Topix has increased by 26% this year, its price-to-earnings ratio is only 14. This contrasts with the S&P 500’s 23 and the Nasdaq’s nearly 29.
Even though Topix’s total market capitalization is 454 trillion yen ($3.03 trillion), Japanese corporations ended the fiscal year with 555 trillion yen in internal reserves. In total, listed Japanese companies hold 20% more cash than their market valuation, with half trading below book value.
After decades of deflation, corporate profits outside of the financial sector saw a record high of 32 trillion yen in the April-June quarter. Recent earnings results have demonstrated the advantages of a weakening yen and the return of some pricing power.
According to recent surveys, inflation expectations are rising, which could encourage people to shift some of their 1,000 trillion yen in cash and savings into bonds and stocks.
The Bank of Japan’s goal rate of 2% is expected to be exceeded by core rates, which are expected to rise to 3.0% in the October consumer price data scheduled to be released on Friday.
Strong salary growth and early indications of further generous pay awards for the upcoming year fuel the conjecture that the BOJ will eventually reverse its ultra-easy policies and possibly even raise interest rates, which would benefit financial sector equities.
As anticipated, China’s central bank maintained its key interest rates on Monday. Still, it also instituted another strict yuan fix that caused the dollar to plummet below 7.2000 on a broader scale.
There has been no official confirmation of media rumors that Israel, the U.S., and Hamas have tentatively agreed to release scores of hostages in Gaza in exchange for a five-day ceasefire.
Despite slightly weaker trading on Monday, S&P 500 and Nasdaq futures are still significantly up this year thanks to significant gains in the seven mega-cap darlings. The demand for Nvidia’s (NVDA.O) AI-related goods will be the focus when the tech giant releases its quarterly results on Tuesday.
This week’s Black Friday sales will gauge the health of the consumer-driven American economy, but light trading is expected due to Thanksgiving. This week’s U.S. economic data flow slows down to a trickle. Still, the minutes of the Federal Reserve’s most recent meeting will provide insight into the decision-makers reasoning for maintaining the current interest rate.
The markets have factored in early and vigorous easing for 2024, so they are susceptible to hawkish indications.
Futures suggest a 30% chance of an easing beginning in March and a zero chance of another raise in December or the following year. Additionally, futures suggest roughly 100 basis points of cuts for 2024, up from 77 basis points before the market-ruffling mild October inflation report.
Significant events that could affect Monday’s markets include:
- October German PPI, E.U. building output
- Bank of France appearances Governor de Galhau of the Spanish Bank, Governor Bailey of the Bank of England, and Governor de Cos
- Fed’s Barkin airs on television.