A look at the day ahead in European and global markets from
Monday.

It’s been a mixed start for most of Asia in this
holiday-truncated week, though Japanese shares extended their
bull streak to hit highs not seen since 1990.

The Nikkei is up more than 8% so far this month, and almost
29% for the year so far. The broader Topix is up 26% on the year
but still only trades at a price to earnings ratio of 14. That
compares to 23 for the S&P 500 and almost 29 for the Nasdaq.

The entire market capitalisation of the Topix is 454
trillion yen ($3.03 trillion), yet Japanese companies held 555
trillion yen in internal reserves at the end of the financial
year. Half of the listed Japanese companies trade at below book
value, and in aggregate hold 20% more cash than their market
cap.

Corporate profits ex-financials reached a record high of 32
trillion yen in the April-June quarter and recent earnings
results have shown the benefit of a weak yen and the return of
some pricing power after decades of deflation.

Recent surveys show inflation expectations are finally
picking up which may prompt households to invest some of the
1,000 trillion yen they currently keep in cash and deposits into
equities and bonds.

Japan consumer price data for October are due Friday and are
forecast to show core rates moved back up to 3.0%, some way
above the Bank of Japan’s 2% target.

A strong wage round and early signs of more bumper pay
awards for next year are stoking speculation the BOJ will
finally unwind its uber-easy policy, and maybe even turn rates
positive – a major boon for financial sector stocks.

China’s central bank kept its main rates steady on Monday as
widely expected, but did set another firm fix for the yuan that
saw the dollar slip under 7.2000 and fall more broadly.

There were media reports Israel, the United States and Hamas
had reached a tentative agreement to free dozens of hostages in
Gaza in exchange for a five-day pause in fighting, but no
confirmation as yet.

S&P 500 and Nasdaq futures were trading a fraction softer on
Monday, but are still up sharply on the year so far driven by
huge gains in the seven mega-cap darlings.

Tech major Nvidia reports quarterly results on
Tuesday, and all eyes will be on the state of demand for its AI
related products.

The Black Friday sales will test the pulse of the
consumer-driven U.S. economy this week, while the Thanksgiving
holiday will make for thin trading.

The flow of U.S. economic data turns to a trickle this week,
but minutes of the Federal Reserve’s last meeting will offer
some colour on policy makers’ thinking as they held rates steady
for a second time.

Markets are clearly vulnerable to any hawkish hints given
they have priced in early and aggressive easing for 2024.

Futures imply zero chance of a further hike in December or
next year, and imply a 30% chance of an easing starting in
March. Futures also imply around 100 basis points of cuts for
2024, up from 77 basis points before the benign October
inflation report roiled markets.

Key developments that could influence markets on Monday:

– German PPI for October, EU construction output

– Appearances by Bank of France Governor de Galhau, Bank of
Spain Governor de Cos, Bank of England Governor Bailey

– Fed’s Barkin appears on TV
($1 = 149.6200 yen)

(By Wayne Cole; Editing by Christopher Cushing)