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Nikkei hits record high, investors await Powell’s testimony


The Nikkei index climbed 2.3% to a record high, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, just below a two-year top a day earlier

Japan’s Nikkei reached a record high on Tuesday, while investors elsewhere waited to see if Fed Chair Jerome Powell would sound supportive of rate cuts after evidence the U.S. labour market is cooling.

Europe is set for a mixed open, with EUROSTOXX 50 futures down 0.2% and FTSE up 0.1%. S&P 500 futures added 0.2% and Nasdaq futures gained 0.3%, after Wall Street equities edged up to end at record highs on Monday.

The Nikkei index climbed 2.3% to a record high, supported by semiconductor shares, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, just below a two-year top a day earlier.

Taiwanese shares also reached a record high before running into profit-taking and were down 0.1%. China’s blue-chip index added 1.1% and Hong Kong’s Hang Seng index edged up 0.5%.

Powell is set to appear before Congress on Tuesday and Wednesday, as investors bet a slew of soft labour market data has greatly increased the possibility of a rate cut in September to nearly 80%.

I think markets got a degree of optimism that Powell will be cautiously dovish and that the CPI later this week will confirm that disinflation is back on track, according to Shane Oliver, chief economist at AMP in Sydney. Which I think appears reasonable. When you look at the U.S. economy, most of the data is softening. Jobs figures on Friday were on the soft side, unemployment trending higher. Most labour market leading indicators are cooling down, he said.

The main economic event this week will be the U.S. consumer price report on Thursday, where headline inflation for June is expected to drop to 3.1%, from 3.3% in May, with core inflation forecast stable at 3.4%.

For the remainder of 2024, markets have fully priced in a total 50 bps of easing, equivalent to two rate cuts.

In foreign exchange markets, the euro held its ground at $1.0825 after Monday’s sharp swings as investors come to terms with a hung parliament in France, which points to potential political gridlock but removes many fiscal concerns stemming from far-right or leftist victories.

The U.S. dollar stabilised near four-week lows at 105.01 against other major currencies, offering some respite to the battered yen and yuan.

The Japanese yen held at 160.95 per dollar, having hit a 38-year low of 161.96 per dollar last week, while the offshore Chinese yuan lingered at 7.2897 per dollar, after advancing for four consecutive sessions to move away from 7-1/2 month lows.

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