NIKKEI surges as yen, US stocks take back seat
The NIKKEI continued its winning ways Wednesday, extending its gains on the back of a weaker yen and better-than-expected corporate earnings. Two-thirds of the 221 index companies to report quarterly earnings have exceeded analysts’ expectations, compared to 56 percent the previous season. The benchmark Japanese index gained another 1.32 percent Wednesday, surpassing 14,000.
The NIKKEI’s climb to the top comes at the expense of the yen, which has traded inversely with the benchmark index for much of the year. The US dollar’s recent encroachment on the yen has been met with a surge in Japanese stocks, as investors shift their assets from safe havens to higher yielding equities. The yen has declined almost 2 percent this week after second quarter growth failed to keep pace with the previous. According to the Japanese Cabinet Office, the economy grew 2.6 percent in the second quarter, compared to 3.8 percent the previous quarter.
The USDJPY eased off its earlier highs, consolidating below the 98.00 handle at the end of the New York day. The pair reached an earlier high of 98.4215, erasing the previous 7-week low of 95.8100. The yen is currently trading at its weakest level in ten days, a trend that will intensify as we get closer to the Federal Reserve’s decision to taper its monthly asset purchases.
Year-to-date, the NIKKEI has outperformed every major developed market, advancing 30 percent. Elsewhere in Asia the Hang Seng advanced more than 1.2 percent to 22,541.10, as Asian markets continued to trade firmly. In the US stocks fell sharply on central bank speculation, sending the benchmark gauges tumbling. The S&P 500 erased its Tuesday gains by dropping more than half a percent to 1,685.39. The benchmark S&P 500 has struggled to maintain its record highs in August, suggesting the market is consolidating ahead of September action. The index’s trade volumes were more than 20 percent lower than the 100-day average.
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