Japan’s stock market surges, mixed data from Australia

Summary:

• Japan’s stock market pushed higher after a holiday on Monday

• Australian dollar outperforms its G10 peers following a bag of mixed macroeconomic prints

• Former EU chief invited by Theresa May for a dinner as she seeks support in Brexit negotiations

Catching up

The Japanese stock market surged 2.6% on Tuesday after investors came back from a Monday’s holiday. This result seems to be a response to decent gains seen in Europe during the first trading day this week, US stocks had a lacklustre session though. The solid increase in Japan is also spreading over other Asian markets underpinning stocks in China, Hong Kong and Australia - all these indices are rising between 0.2% and 0.4% shortly after 6:00 am GMT. It is worth also noting that as many as 188 out of 225 companies listed in the NIKKEI have already reported their earning. An average earnings surprise has totalled 3.1% so far, this result is similar to that seen in the SP500. Writing about Japan let us also note that the Bank of Japan decided to cut JGB purchases in a 10-25 year window to 180 billion JPY from 200 billion, it happened for the first time since July 2018. Meanwhile, the Japanese 10Y yield is trading one basis point below its flat line after moving down steadily during January in response to worsening expectations about global economic growth.

The Japanese NIKKEI (JAP225) bounced off its critical support line being supported by the 23.6% retracement. Therefore, from this point of view bulls could hope to see a continuation of today’s rally during coming days. However, the first obstacle is placed relatively close (21000 points), hence buyers will have to deal with it first before resuming their upward move. Source: xStation5

Mixed data from Australia

Looking at the currency market we may spot that the Australian dollar is the best performing one in the G10 space rising 0.25% at the time of writing. Over the Asian session we were offered mixed data from the Antipodean economy. While home loans fell 6.1% MoM in December, well below the expected 2.1% decrease, business conditions and confidence improved in January. According to the NAB indicators business conditions improved to 7 from 2, business confidence improved to 4 from 3. The bank informed that “some improvement was likely given the difficulty in addressing seasonality around the Christmas/New Year period but even after this partial reversal, conditions and forward orders continue to trend lower and still show a sizeable decline over the past 6 months.” At same time, the NAB decided to revise its call on RBA’s rates and now it expects that Reserve Bank of Australia will stay on hold for an extended period with risks tilted to the downside. Let us remind that the Australian dollar was strongly afflicted by a change in RBA’s rhetoric last week after Governor Philip Lowe suggested that a rate cut was on the table if labour market conditions deteriorated. Looking forward, the Aussie could be susceptible to heightened volatility as we are slowly approaching a March 1 deadline to reach a trade agreement between the US and China to avoid increased tariffs. Finally, one needs to remember that the Aussie is considered as a proxy for the Chinese yuan, as trading in the latter is limited, hence both currencies tend to move in tandem. Thus, positive news pushing up the renminbi higher are likely to translate into rises in the Aussie too.

After the ugly last week the Aussie could be in a position to see some rebound this week if the China-US trade talks do not bring a failure. Looking for targets for a possible bounce one may focus on 0.7300. On the other hand, a move below 0.7030 would see the pair falling quite quickly even toward a trough post the flash crash on JPY crosses. Source: xStation5

In the other news:

• Former President of the European Council Herman van Rompuy had a private dinner with PM Theresa May on Monday, according to Sky News; he is seen as a potential “influencer” to break the Brexit deadlock

• US Congressional negotiators reached a tentative deal on border security including $1.375 billion for a border barrier, less than the $5.7 billion sought by Donald Trump

• Chinese Commerce Ministry reported that consumption growth in China was “very likely” to slow further this year as the economy cooled

• New Zealand’s inflation expectations, released by the RBNZ, showed 1-year expectations slowing to 1.82% from 2.09% and 2-year expectations slowing to 2.02% from 2.03%

• New Zealand’s electronic card spending rose 1.8% MoM in January, above the 1.4% expected increase

• Japan’s money stock M2 stayed at 2.4% YoY and M3 at 2.1% YoY in January

• Japan's preliminary machine tool orders slumped 18.8% YoY in January after declining 18.3% YoY in December