A decent US payrolls number on Friday followed by a victory by Japanese Prime Minister Shinzo Abe in Japanese Upper House elections at the weekend has helped push Asia markets higher this morning with the Nikkei 225 posting its highest levels since June 24th on speculation that an improved mandate will prompt the Japanese government to finally implement the long awaited third arrow of Abenomics.
Whether this takes the form of further stimulus as well as structural reform is open to question at the moment but the hope is that Shinzo Abe’s improved mandate will make him bolder in terms of policy steps to turn the Japanese economy around. As a result the yen has weakened sharply, the worst performer on the day.
Mining stocks have once again been the best performers so far today with Glencore (LON:GLEN) leading the way, followed by Anglo American (LON:AAL), as speculation of easier monetary policy, not only from Japan, but also from China after weaker than expected inflation data at the weekend pointed to more flexibility in monetary policy.
Financials and house builders have also continued their rebound as they look to post their third consecutive daily gain after as they look to gain a foothold above last week’s multi month lows, with Barratt Developments (LON:BDEV) the best performer.
Defence stocks are likely to be in focus today with the start of the Farnborough Air Show with Airbus (LON:0KVV) set to announce deals in the region of $20bn.
Rolls Royce (LON:RR) shares have slipped back despite announcing its intention to pay €720m over the next two years to purchase the remaining 53.1% shareholding it has in Spanish aero engine component manufacturer ITP.
Oil prices have stabilised near two month lows after the latest US rig count number jumped to its highest level in nearly 3 months, as idle rigs are brought back on line as oil prices stabilise around the $50 a barrel level. Even though we’ve seen a slight pull back from last month’s peaks the downside so far has been fairly limited despite speculation of further increases in production capacity from Iran, and the likelihood that US rig counts will continue to edge higher, the longer prices stay near their current levels.
US markets look set to open at their best levels this year with the S&P500 close to its record high of 2,137 as the ripple out effect from Friday’s payrolls number looks set to percolate through to the start of a new week and the beginning of a new US earnings season.
This gets under way later this evening when Alcoa (NYSE:AA) reports on its latest Q2 results.
Financials are likely to be a key bellwether this week with JP Morgan the first of US banks to report on Thursday. Investment banking earnings have been on a slow decline for the last 12 months and with trillions of US dollar of global bond yields now in negative territory this week’s earnings announcements are likely to make for sobering reading.
The only data of note today is the latest Federal Reserve Labour Market Conditions Index for June which despite the continued resilience in headline jobs numbers has been mired in negative territory for all of 2016 and in May posted its weakest reading since May 2009.
The Dow Jones is expected to open 54 points higher at 18,200
The S&P500 is expected to open 5 points higher at 2,135
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