Japan's Nikkei at 30-Year Highs

The Catch Up

• China and Hong Kong are still on holiday on account of the new lunar year, with these coinciding with holidays in the US (President's Day), Canada (Family Day) and Brazil (Carnival). As a result, only Japanese, Korean, Australian, and European markets will be open today.

• Nonetheless, the thin volume was enough for the Nikkei to jump almost 2%, moving past the 30,000 mark for the first time in more than thirty years. Japanese stock market gains have based their performance on the anticipated global rebound from the pandemic this year, but unlike other countries this has also been supported by the data releases.

• The Japanese economy expanded more than expected in the fourth quarter, with GDP rising by an impressive 12.7% y/y, while private consumption was also higher. Furthermore, it appears that the country will register a positive growth rate for the year overall, a result of a rebound in overseas demand that boosted exports and capital spending. The abundance of cyclical shares, such as electronic parts makers, has also been attracting global investors.

• For the history buffs, the last time the Nikkei was above 30,000 was in August 3, 1990, marking the longest period of time to recover; even during the Great Depression, the Dow Jones took 25 years to recover. None of the Japanese banks that topped the list of companies with biggest market capitalisation in 1990 exist now, as they subsequently suffered massive loan losses and repeated mergers to survive.

Compared to the 1988-1990 period, most investors see the Nikkei's rise above 30,000 as less shaky. The market is currently trading around 17 times expected earnings, higher than recent years but nowhere near as high as the 50 times earnings it traded in 1990. Still, others remain skeptical about the future as they note that the ongoing US-China tensions continue to make the world shaky, while the easy money policies of the late 1980s are also evident nowadays.

• Elsewhere in Asia, the KOSPI was up 1.6%, while the ASX rose by 0.4%. European and US futures were also up, with the US500 gaining 0.42% and the DAX up 0.58%.

• Analysts have shifted their views with regards to inflation and its relationship with equity markets, noting that as long as the rise in prices is gradual stocks can continue to do well.

• In addition, they also note that commodities could benefit from an inflationary cycle and they can continue to recover as long as core inflation remains relatively stable.


Currencies

• Not much action in the currency markets, with the USD gaining some against the Japanese Yen, softly moving past the 105 level.

• On the other hand, the Euro rose to 1.2125, while Sterling moved 0.3% higher. The risk sensitive Aussie and Kiwi Dollar were both marginally higher.

• Bitcoin advanced heavily during the weekend, reaching almost $50,000, as demand for the cryptocurrency surged. However, it fell hard during the Asian session, moving back to $45,900. Ethereum was also down by around 8%.

• The cryptocurrency's rise is largely attributed to a wave of large players buying and pushing the price higher. In the case one fund cashes out, then we could see a large drop in the price. Still, over the weekend, Bloomberg reported that Morgan Stanley will be making a bet on Bitcoin.


Oil & Gold

• Oil prices moved to their highest level in 13 months, as fears of heightened tensions in the Middle East prompted fresh buying. In addition, hopes that a US stimulus and an easing of lockdowns will boost fuel demand were also supportive of the price.

• Brent crude rose to $63.52 per barrel, while WTI moved to $60.75. The move appears to be a longer-run one, as oil prices have gained around 5% last week.

• Analysts go as far as noting that the combination of cheap money supply, monetary easing, the vaccine rollout, and tight supply from OPEC+ and US shale producers could mean prices of up to $70 per barrel.

• Renewable all the way? There are factors that may be prevent this from happening. Ice storms knocked out nearly half the wind-power generating capacity of Texas on Sunday, while at the same time electricity demand was at record high levels. Wind generation ranks as the second-largest source of energy in Texas, accounting for 23% of state power supplies last year, behind natural gas, which represented 45% of the total.


The Look-Out

• With most markets closed today, the main data release is unsurprisingly from the EU, where manufacturing production is forecast to have dropped by 0.3% y/y .