Japanese Stocks Soar to 34-Year Peak as Global Markets Steady Themselves for US Inflation Update

Japanese stocks reached a 34-year high on Wednesday, led by exporters boosted by a weakening yen, as global equities, the dollar, and bonds remained steady ahead of the release of U.S. inflation data on Thursday. The Nikkei, which had its best year in a decade in 2023, surged 2% to break above the 34,000 mark for the first time since 1990. This comes after data showed Japanese real wages had contracted for a 20th consecutive month in November.

"The problems have been corporate governance, which is definitely improving, and it has tended to be a very cyclical market, so it gets hit especially hard when the market turns down," said Duncan MacInnes, an investment director at British firm Ruffer.

Meanwhile, the pan-European Stoxx 600 index remained flat in early trading, while Britain's FTSE 100 dipped 0.19% and Germany's DAX index rose 0.2%. Futures for the U.S. S&P 500 were up 0.19% after the index dipped 0.15% on Tuesday, as investors held their breath for the inflation figures and the start of the company earnings season.

In the U.S., the S&P 500 is down around 0.3% so far in January after rallying 24% last year. The U.S. currency has risen around 2% since hitting a five-month low in late December. Bitcoin was last down 1.3% at $45,540 after spiking as high as $47,897 on false reports of ETF approvals.

The key event for markets this week is the U.S. consumer price index inflation data on Thursday, which could cause traders to adjust their bets on rate cuts. Economists predict year-on-year inflation at 3.2% in December, up from 3.1% in November. However, they believe core inflation likely fell to 3.8%, its lowest since mid-2021, from 4%.

"Market pricing... has gotten a little bit ahead of itself," said Jeff Klingelhofer, co-head of investments and managing director at Thornburg Investment Management. "If you look at history - five (25 bp) cuts is very consistent with a recession, but markets aren't pricing in a recession."

Geopolitical tensions were also on the radar as disruptions in the Red Sea and a production outage in Libya raised oil prices, and an election looms in Taiwan. Brent crude oil futures rose 1.9% on Tuesday and were up 0.4% to $77.91 a barrel early on Wednesday. The euro was up 0.14% at $1.095, while the dollar was 0.3% higher against the yen.