Nikkei hits record high on Wall Street bounce

A passerby is reflected on an electronic screen displaying a graph showing recent Japan’s Nikkei share average movements and stock prices as the share average hits a record high in Tokyo, Japan Feb 26, 2024. REUTERS/Issei Kato/File photo

SYDNEY  — Japan’s Nikkei hit a fresh record high on Friday, buoyed by the bounce on Wall Street as a key U.S. inflation reading was in line with expectations, while markets elsewhere in Asia were more subdued on China’s still-uncertain economic outlook.

The Nikkei index gained 1.8 percent to hit a fresh all-time high, extending a surge of 7.9 percent the previous month when it breached levels last seen in 1989. Australia’s resources-heavy shares also hit a record high and were last up 0.3 percent on the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan, however, fell 0.1 percent, weighed down by a 0.2 percent drop in Hong Kong’s Hang Seng index. The Asia index is set for a weekly loss of 1 percent.

Data on Friday showed China’s factory activity contracted for a fifth straight month in February, while the expansion in the services sector picked up pace, highlighting an uneven recovery for the world’s second-largest economy.

“The PMI is less reliable in Feb because of the Chinese New Year holiday makes it difficult to get a clear picture of economic momentum,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“We need to wait for more macro data on retail sales and industrial production in Jan-Feb to get a clear view on the economy.”

China markets tentative

China’s mainland markets were tentative, with both the blue chips and Shanghai Composite index mostly flat on the first day of March. Investors are on the lookout for further stimulus at a key policy meeting next week.

Japan’s factory activity shrank at the fastest pace in more than 3-1/2 years in February, a private-sector survey showed on Friday.

READ: Japan’s Feb factory activity extends decline as conditions worsen

Overnight on Wall Street, the S&P 500 and Nasdaq closed at record highs. The U.S. personal consumer expenditures (PCE) price index, the Federal Reserve’s preferred gauge for inflation, rose 0.3 percent in January from a month earlier. The core PCE price index rose 0.4 percent, as expected.

That kept the prospects of a June interest rate cut alive. Markets still see a 76-percent probability the Fed will start cutting interest rates in June, with a total easing of 82 basis points priced in for this year.

“The PCE data confirms the unhelpful January inflation surprise already previewed by earlier CPI and PPI numbers,” said Taylor Nugent, a senior economist at National Australia Bank.

“We don’t think the disinflation trend has been arrested, but there is some risk support from residual seasonality issues in the January increase also bleeds into February.”

Further aiding sentiment, Fed speakers overnight reiterated that policymakers will look through recent data that showed price pressures rebounded in January to focus on overall progress on inflation.

READ: ECB to cut rates in June, but economists split on timing

In Europe, inflation readings in Germany, France and Spain all eased, mostly in line with expectations, which should bode well for the eurozone inflation data due later on Friday.

That drove a fall in the euro, which was hovering at $1.0809, having eased 0.3 percent overnight.

BOJ chief’s cautious tone

The yen slipped 0.2 percent to 150.23. It gained 0.5 percent overnight after a Bank of Japan board member, Hajime Takata, said sustained achievement of 2 percent inflation was already in sight.

However, BOJ Governor Kazuo Ueda later struck a more cautious tone, saying that it was too early to conclude that sustained achievement of the central bank’s 2 percent inflation target can be foreseen.

Bonds rallied in relief that the U.S. PCE data was not worse than expected. The 10-year Treasury yield held at 4.2639 percent after edging 4 basis points lower overnight. It jumped 29 basis points last week as markets pushed back bets on early rate cuts.

The two-year Treasury yield, which reflects interest rate expectations, was also flat at 4.6373 percent, having eased 4 bps to 4.644 percent.

Oil prices edged up on Friday. Brent rose 0.4 percent to $82.21 a barrel, while U.S. crude gained 0.3 percent to $78.47 per barrel.

The spot gold price was flat at $2,043.99.