While Chinese shares were again starved of stimulus, Japanese stocks need no such help, hitting a fresh 34-year peak on Monday for the seventh time so far this year and bringing the Nikkei’s gains for January to almost 9%.
Analysts at Bank of America argue that the Nikkei is benefiting from the “anywhere-but-China” bid and from investors having been structurally underweight Japan, which is 5.5% of the MSCI All Country World Index now compared with 44% at its previous peak in 1989.
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, April 27, 2023. REUTERS/Staff
China disappoints doves
For Chinese stocks, however, the central bank likely set the tone for the week by keeping policy steady on Monday, having already disappointed doves by skipping cuts last week when anticipation was high.
Analysts suspect the PBOC is keen to avoid further pressure on the yuan, which has at least steadied above two-month lows in recent days.
However, the lack of extra stimulus has not gone down well with the stock market, where blue chips have hit a five-year trough and speculation is rife that Beijing has been using state funds to prop up the market.
Back in Japan, the weakness of the yen and a tide of offshore funds is fuelling the Nikkei rally, encouraged by a sense the Bank of Japan (BOJ) is really in no hurry to step away from its uber-easy policy, at least until annual wage negotiations are over in the spring.
A Reuters poll of 29 economists found all expected the BOJ to stay steady on Tuesday and to offer no hint of moving anytime soon. Some reckon it will finally act in April, but even that is not set in stone given that inflation is slowing towards 2%.
All 85 respondents to the Reuters poll for the ECB see no change on Thursday, given how much push back there was from policy makers last week. Almost half of analysts tipped a first cut for June, with futures now implying just a 20% chance for March but still around 80% for April.
Markets have 130 basis points priced for 2024, in part on the theory that inflation will slow sharply enough that the ECB will have to cut to stop real rates from rising.
The Bank of Canada and Norges Bank meetings this week have no expectations of any change, but Turkey is considered likely to hike given hawkish commentary last week.
Odds on a Federal Reserve cut in March have shifted to 50-50 following a run of better data on retail sales and consumer sentiment, but May remains an 89% bet.
Reports on U.S. GDP and the core PCE price index could change the equation, with a lot riding on the core PCE rising 0.2% or less in December. The annual pace could slip under 3% for the first time since March 2021, while the six-month annualised pace is already just under 2%.
The week is also crowded with earnings, and appetites have been whetted by the upgrade from Taiwan Semiconductor Manufacturing (TSMC) on booming demand for high-end chips used in AI applications.
That should sharpen attention on results from Intel and IBM, along with Tesla, Netflix, Lockheed Martin and a host of others.
Graphics are produced by Reuters.
Key developments that could influence markets on Monday:
Earnings from United Airlines and Brown & Brown
U.S. leading index for Dec
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