Japanese stocks reach three-decade highs, yuan pushes dollar lower

SYDNEY, Nov 20 (Reuters) – Japanese stocks hit highs not seen since 1990 on Monday as strong earnings and external demand fueled a three-week winning streak, while China’s central bank pushed the yuan higher, sending the dollar weaker more broadly.

Japan’s Nikkei (.N225) saw profit taking at the peak, but remains up 8.2% for the month so far, with the Topix (.TOPX) not far behind.

Financial stocks led gains on Monday as investors braced for an eventual end to negative interest rates, while automakers benefited from a weak yen and rising exports.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.8%, after rising 2.8% last week to a two-month high.

Black Friday sales will test the pulse of the consumer-driven US economy this week, while the Thanksgiving holiday will send markets weak.

Media reports spoke of Israel, the United States, and Hamas reaching an initial agreement to release dozens of hostages in Gaza in exchange for a five-day cessation of fighting, but this has not been confirmed yet.

Chinese blue chip stocks (.CSI300) fell 0.2% as the country’s central bank kept interest rates steady as widely expected, but set a steady rate for the yuan, sending the dollar below 7.2000 to a three-month low.

EUROSTOXX 50 futures remained flat, while FTSE futures were flatter.

S&P 500 futures fell 0.15%, and Nasdaq futures lost 0.35%. The S&P is now up about 18% this year and less than 2% away from its peak in July.

However, analysts at Goldman Sachs point out that the “Magnificent 7” stocks have returned 73% for the year so far, compared to just 6% for the remaining 493 companies.

“We expect large-cap technology stocks to continue to outperform given their superior expected sales growth, margins, reinvestment ratios, and balance sheet strength,” they wrote in a note. “But the risk/reward profile is not particularly compelling given the high expectations.”

Technology major Nvidia (NVDA.O) reported its quarterly results on Tuesday, and all eyes will be on the state of demand for its AI-related products.

The flow of US economic data is turning into a steady stream this week, but minutes from the Federal Reserve’s latest meeting will give some color to policymakers’ thinking as they hold interest rates steady for a second time.

Its price is great

Markets have been able to estimate the risks of another rate hike in December or next year, and are pointing to a 30% chance of easing from March. Futures also point to cuts of around 100 basis points for 2024, up from 77 basis points before October’s benign inflation report shook markets.

Those expectations helped bonds rise, with 10-year Treasury yields at 4.45% after falling 19 basis points last week and far from October’s high of 5.02%.

It also pushed the US dollar down by about 2% on a basket of currencies last week, and helped the euro rise to $1.09365 after it jumped 2.1% last week.

The dollar has also lost ground against the low-yielding yen, most recently down 0.5% to 148.89 and below its recent high of 151.92. Expectations of another strong wage round and a high core inflation reading later this week have sparked more talk about eventual BOJ tightening.

Futures data showed that speculative accounts expanded their short positions in the yen to the highest level since April 2022, indicating the risk of reducing those positions.

Closely watched surveys of European manufacturing are due this week and any sign of weakness will encourage further bets on early interest rate cuts from the European Central Bank.

“These surveys will be very important in the euro area services sector given the sharp deterioration we have seen recently,” NAB analysts said. “In the event of another e-print, expect the pricing of ECB cuts to extend beyond the current 100 basis point cuts priced in for 2024.”

Markets are implying there is a 70% chance of easing as soon as April, although many ECB officials are still talking about the need to keep monetary policy tight for longer.

The Riksbank meets this week and may raise interest rates again, given rising inflation and a weak currency.

In commodity markets, oil rebounded from four-month lows on Friday amid speculation that OPEC+ will extend or increase production cuts at its meeting on November 26.

Brent added 58 cents to $81.19 per barrel, while the price of US crude rose 49 cents to $76.38 per barrel.

The price of gold rose slightly at $1,982 per ounce after rising 2.2 percent last week.

Our standards: Thomson Reuters Trust Principles.