THE RISING SUN OF THE MARKET
Dear clients,
As Japanese equities have unexpectedly come back into fashion with global investors, analysts at leading Wall Street investment banks are predicting further gains in the country's major indices.
Japan's Topix index (Tokyo Price Index) has reached new highs in the last two weeks, and on Monday it recorded its highest level since July 1990.
It has jumped 14% since the start of this year, recently fuelled by optimism from the tentative debt ceiling deal reached between US President Joe Biden and House Speaker Kevin McCarthy, along with momentum from a weaker yen. Meanwhile, the Nikkei 225 continues to rise, gaining around 20% over the past year.
The start of an inflationary regime, combined with Tokyo Stock Exchange valuation reforms, will see Japanese equities hit record highs as early as the first half of 2025, according to BofA Securities.
BofA's forecasts echo those of other Wall Street firms, which see further room for a rally in Japanese equities. Heightened interest from foreign investors, strong earnings and a weak yen should continue to support growth in the Topix index. Disappointment with the Chinese economy and Warren Buffett's recent interest in the Japanese market are also cited as motivators.
While equities may face headwinds in the near term, the BofA said there is "no need to take a bearish stance if the market rallies in line with fundamentals". The current investment environment remains favourable following the opening of the economy and stronger inflation.
The rush in Japanese equities reached a record high on Wednesday amid a continued surge in foreign demand for the country's shares and an adjustment in positions ahead of the rebalancing of the MSCI equity index.
The value of shares traded on the Tokyo Stock Exchange's Prime Market index reached an unprecedented level of nearly 7 trillion yen ($50 billion) on May 31. Finance Ministry data on Thursday showed foreign investors were net buyers of Japanese shares for nine consecutive weeks in the period ended May 26, the longest buying period since November 2019.
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TRADING SIGNALS: NFP FOR MAY
Dear clients,
On June 2, the Non-farm Payroll, a measure of US industrial employment, is expected to be published. The report greatly influences the movement of American dollar and related instruments.
We will find out what figures are expected this time from our expert:
Falling unemployment claims and rising employment in services - the lion's share of the US economy - are indicative of positive Non-Farm Employment data, which is favourable for the dollar's strength. On Friday, consider buying USDTRY, USDZAR, USDCAD, USDCHF.
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ONE LESS THING TO WORRY ABOUT. THE GROWTH OF OIL
Dear clients,
Oil prices rose on Thursday by the largest amount in a fortnight ahead of the OPEC+ meeting on Sunday, while the passage of a bill to suspend the US debt ceiling by the House of Representatives helped offset the impact of rising stocks in the country.
US West Texas Intermediate crude rose $2.01, or 3 per cent, to settle at $70.10 a barrel, recording its biggest daily gain since May 5. Brent crude futures rose $1.68, or 2.3%, to $74.65 a barrel, the biggest daily gain since May 17.
Both benchmarks recovered after two consecutive sessions of declines after the House of Representatives passed a bill late on Wednesday night to suspend the US government debt ceiling and improve the chances of preventing a default. The bill now moves to the Senate.
Market attention has shifted to the OPEC+ meeting on 4 June. Sources within the organisation said the alliance was unlikely to deepen supply cuts at Sunday's meeting, but some analysts believe this is possible as demand figures in China and the US have been disappointing in recent weeks.
US crude inventories rose unexpectedly last week as imports jumped and strategic stocks fell to their lowest level since September 1983, according to the Energy Information Administration.
Data from China's manufacturing sector presented a mixed picture, with Thursday's Caixin/S&P Global manufacturing PMI better than expected, while official government data from the previous day reported that activity at firms in May contracted to its lowest level in five months.