After a week’s break in Japan which ushered in the Reiwa era, we resume our weekly publication on a continued positive note ahead of the market opening on Tuesday. Despite some anxieties about what the long holidays could bring, global stock markets have remained fairly tame with some weaker US corporate earnings, especially in the tech segment, not having a major impact on the the overall sector as investors have remained generally positive about the long term outlook for growth despite the well known short term headwinds.
Moreover, the US-China trade talks looks to be nearing its conclusion with a deal looking fairly imminent. As we had also highlighted, the US seems to have also adopted a more dovish approach towards bilateral trade negotiations with Japan with no major threat of any tariffs on Japanese exports and a more gradual approach towards opening the country’s agricultural markets. With these major hurdles looking to be cleared soon and the Fed retaining its dovish stance, we think global stock markets will remain on a continued recovery path and a US stock market melt-up still looks a very possible scenario as much money have remained on the sidelines during this year’s big rally.
With Japan’s disrupted earnings season to resume this week, we believe weaker results and outlook will once again be taken into market’s stride as investors will be looking at the US stock market rally for leadership. We retain our generally bullish stance on tech and automation names as we continue to see these segments leading the market higher.
Nevertheless, we are also looking closely at financial names for any technical breakouts as BOJ’s most recent change in nuance in providing a deadline for an end to its continued ultra loose monetary policy until next year, rather than pursuing the course at any cost, does seem to suggest that Japan’s central bank can no longer ignore the negative impact of its oversized QE program on the health of the financial industry and Japan’s capital markets. This seems to suggest that we should be preparing a playbook for a tapering scenario which should lead to a dramatic outperformance of banks and insurance names at some stage, probably in the second half of this year as global economies show more notable signs of recovery.