Asian markets have charged higher today, erasing the losses we saw around the region yesterday. While the ASX 200 is outperforming with a 1.1% gain, attention has been pinned on Japan where the BoJ nominees were confirmed by the upper house. The Nikkei is 0.8% firmer while the Hang Seng is up 0.2% and the Shanghai Composite is relatively flat. Of course we saw equities well bid through European and US trade on the back of another set of firm US data. There was also optimism around the two-day European summit in Brussels and a separate euro-area finance ministers meeting to discuss a bailout for Cyprus. The biggest surprise was perhaps the fact that the US dollar actually lost ground despite the better-than-expected unemployment claims data. Some analysts attributed this to a lack of follow-through in US bonds. There were also some fairly disjointed moves through the major FX pairs, particularly with the single currency coming back to life. EUR/USD reclaimed the $1.300 handle as the single currency rallied in-line with European equities. The pair enjoyed a strong bounce off $1.291 and surged to a high of $1.3033, before retreating into $1.300. EUR/USD is just hanging onto this level, and we sense it could be in for a big night ahead with European leaders on the wires. We also have European CPI data to look out for.
Moving over to equities, European bourses traded at five-year highs yesterday and some of them will be looking to maintain this momentum at the open today. So far we are calling European markets relatively mixed at the open, with the DAX and FTSE edging higher. While the Dow posted a tenth consecutive winning session and eighth consecutive all-time high, all eyes will be on the S&P today as it is within just two points of its all-time high. So far, it seems like US markets will start the session relatively flat to mildly softer. It’s going to be a fairly big night on the economic front with CPI, empire state manufacturing index, industrial production and consumer sentiment data due out. Turning to the local market, what was both surprising and impressive today was the materials’ ability to gain ground in the face of deteriorating iron ore prices. Although some of them have waned, we still have gains for Fortescue Metals (+0.5%) and BHP (+0.8%). Defensives have also added weight to the positive print, with the banks and Telstra adding to the index after being sold off over the past three days. Investors are lapping up Westpac (+1.9%) and NAB (+1.3%) and CBA (+1.6%). Myer has extended its gains from yesterday’s earnings report, putting on 1.1%.
Yesterday we highlighted that we remain of the opinion that traders could see any dips as a good opportunity to get involved in the Japan story. The Nikkei has pushed higher today, putting on 0.8% after the BoJ nominees were finally confirmed. USD/JPY moved back above 96 to a high of 96.59 yesterday, but drifted in Asia as traders awaited results from the upper house vote. The main event in Asia today was the confirmation of Haruhiko Kuroda as BoJ governor. Kikuo Iwata and Hiroshi Nakaso were confirmed as his deputies. It all seems to be going to plan for Japan at the moment, with some speculating that we may see the trio push for further easing before the April 3 to 4 official BoJ meeting.
The fact that the upper house, where PM Shinzo Abe lacks a majority, approved the candidates is a clear sign of where Japan wants to take things. The Nikkei is the best performing developed market this year, adding approximately 19% so far. Compared to the Dow that is up 10.95%, S&P 500 +9.61%, FTSE +10.71% and the ASX 200 +8.24%, it is outstripping world markets by almost double. We have also talked about the inverse correlation between the yen/Nikkei. Since Mr Abe came to power in November, USD/JPY has gained 20% with the Nikkei almost perfectly mirroring this move, adding weight to the excitement. The Tokyo stock exchange released data showing foreign investors bought ¥1.02 trillion worth of Japanese shares in the first week of March. That is the highest level since they started recording such data in 1982. As a result, we remain of the opinion that any dips in Japan will be used as an opportunity to accumulate.
Stan Shamu is filling in for Chris Weston, who will return Monday.