Nikkei hits 27-year high on strong dollar, Wall Street gains

Japan’s Nikkei hit a 27-year high on Friday, taking heart from a boost for the dollar after the Federal Reserve chairman said he did not expect a near-term recession, and strong gains on Wall Street overnight.

Japan’s Nikkei stock index rose as high as 24,286.10 points, reaching its highest levels since November 1991, on renewed optimism about the global economy and hopes of a boost to exporters’ earnings from a weaker yen. It was last up 1.5 per cent.

Shares elsewhere in Asia also rose, with MSCI’s broadest index of Asia-Pacific shares outside Japan adding 0.1 per cent. Shares in China were higher ahead of a week-long national holiday. Blue chips gained 1.1 per cent and the country’s main Shanghai Composite index was 0.9 per cent higher.

“Even though we’re at historic highs across a group of global indices, the interesting thing today and yesterday is that it’s translating through to dollar strength,” said Nick Twidale, chief operating officer at Rakuten Securities Australia.

“Whereas over the last couple of months, dollar strength and equities haven’t gone hand in hand, but I think because of the Fed move we’ve seen that change in dynamic,” he said.

Australian shares rose 0.4 per cent, while Seoul’s Kospi gave up ground, falling 0.3 per cent after hitting three-month highs on Thursday.

The Dow Jones Industrial Average rose 0.21 per cent to 26,439.93 on Thursday, the S&P 500 gained 0.28 per cent to 2,914 and the Nasdaq Composite added 0.65 per cent to 8,041.97.

S&P E-mini futures rose 0.1 per cent on Friday to 2,923.5.

After the Fed raised rates on Wednesday, the third time this year, Fed Chairman Jerome Powell said on Thursday that the US does not face a large chance of a recession in the next two years and the Federal Reserve plans to keep gradually raising interest rates.

But Citi analysts cautioned in a note that not all data was reassuring.

“The Citi US Economic Surprise Index has been pushed into negative territory by disappointing housing data in the United States,” they wrote.

“The latest data confirms that the housing market continues to be less than ideal. Pending home sales, a leading indicator, declined to the lowest level in seven months.” Pending home sales fell 1.8 per cent month-on-month versus consensus expectations for a 0.5 drop, they said.

The bullish outlook for the US economy continued to lift the dollar, which was up 0.2 per cent against the yen at 113.54, and earlier touched a new 2018 high of 113.63.

“There’s a couple of reasons that the dollar’s going to remain popular,” said Twidale. “One’s interest rate differentials, and the other is safe haven status while we’ve got these global trade concerns. It’s nothing new, but I think we could see an acceleration.”

The euro rose less than 0.1 per cent to 1.1647 after dropping more than 0.8 per cent on Thursday on uncertainty over the Italian government’s budget deficit to gross domestic product target.

Italy ultimately defied EU requirements that it cut its deficit, targeting a budget deficit at 2.4 per cent of gross domestic product for the next three years.

Markets had expected Italy’s economy minister, Giovanni Tria, to resist a spending push by Italy’s coalition government, which took power in June.

The dollar index, which tracks the greenback against a basket of six major rivals, was up 0.07 per cent at 94.959.

US Treasury yields ticked lower. The yield on benchmark 10-year Treasury notes was at 3.0518 per cent on Friday, compared with its US close of 3.055 per cent on Thursday.

The two-year yield, closely tied to expectations of higher Fed fund rates, touched 2.8269 per cent compared with a US close of 2.835 per cent.

According to Reuters news agency, US crude was 0.2 per cent higher at $72.28 a barrel. Brent crude was mostly flat at $81.73 per barrel.

Gold was slightly higher after tumbling 1.0 per cent on Thursday on strength in the US dollar, which made bullion more expensive for buyers using other currencies.

Spot gold was up 0.16 per cent at $1,184.28 per ounce.