Sanae Takaichi sweeps to victory

Good morning everyone and welcome to Julius Bares moving markets podcast. It's Monday the 9th February and my name is Helen Freer. Before I introduce today's guests in case you missed it, let me just tell you about the latest view beyond podcast which was published over the weekend, where my colleague Ioko Laman talks to our chief economist David Cole all about what we can expect from the incoming chair of the Federal Reserve Kevin Warsh. So it's available on this channel moving markets and it's called the view beyond what Kevin Warsh means for markets. They're back to today and I'll be talking first of all this morning to Bernadette Andeko about the latest market news and what's coming up this week. We had of course the elections in Japan yesterday so I'm happy to also have our colleague Lewis Tua from our equity research team in Asia on the show this morning and I'm looking forward to getting his comments on the outcome of the election and what it means for investors and then as usual on a Monday I'll speak lastly to our head of technical analysis, Men's World Potency for an update from the technical side. So that's coming up in a few minutes but let's get started with a wrap up of the market news first. Good morning Bernadette. Good morning Helen. So I think we have to start with the weekend's biggest news and that's Sanai Takaiichi's historic win in the election in Japan. Yeah indeed Helen I mean as we have Lewis on the show I'll let him cover the detail but the highlights the ruling liberal democratic party captured a two thirds supermajority in the 465 seat lower house. As a result now Sanai Takaiichi has got a very powerful mandate for her spending plans. We saw the Nikkei 225 up over 5.5% this morning it's gone through 57,000 for the first time today. The real estate sector led the Nikkei gains followed by healthcare and industrial sectors. Other Asia markets have also traded higher this morning Helen. We've seen South Korea's cost be jumping over 4% the small cap cost act was up over 2.9%. Hong Kong's Hang saying and mainland CSI is 300 up between 1.1.5% today as well. In other Asian news Bloomberg has reported this morning that China is telling banks to rein in their purchases of US government bonds because of concerns over concentration risks and market volatility. So we've seen US Treasury's extending losses with 10 year benchmark yield up 4 basis points to I think 424 the last time I looked. Okay and how did US markets close the week last week? Well last week Friday in the US we saw stock surging as tech names recovered following several days of very heavy selling in the sector. Bitcoin also rebounded following a route that took the crypto asset down more than 50% from its high in October last year. So on Friday the Dow Jones advanced 2.47%. That was on the same day that the Dow exceeded the 50,000 level for the first time. The S&P 500 jumped 1.97% and the Nasdaq composite was up more than 2%. With those moves the S&P 500 climbed back into the green for the year to date. Even with Fridays jump looking at the week as a whole the S&P 500 posted an 0.1% decline at the Nasdaq was down 1.8% on the week and the Dow was up to 1.5%. So we saw this market broadening benefiting smaller companies, dividend stock growth and the equal weighted indices. And we had a heavy results week in Europe didn't we which definitely impacted index performance there. Yes Helen European stock markets closed higher on Friday afternoon after a very full week of corporate earnings drew to a close. The Pan European Stock 600 advanced almost 1% by the end of the trading session and that was reversing morning losses. One big piece of news, Milan listed shares in Stellantis plummeted 24% after the carmaker announced a wide ranging business reset costing 26 billion US dollars and we also saw French auto stocks falling on Friday morning. Vallejo and Fourvia were both down 0.4% to 0.7% and Renault was down 3%. We also saw the French Linda Societage General down roughly 2% after they published fourth quarter earnings. And commodities are still in the headlines right what's the news there? Yes well for the moment goal prices are back up above 5000 following an exceptionally volatile week for the precious metal. Silver prices have also continued to rise. I think the last I saw they were above 81 dollars. Brent crude oil logged its first weekly decline of 2026, falling 3.7% last week. I think Brent was around 67 30 this morning so even lower again. This is on the back of US talks with the RAN reportedly taking a step forwards. All right and looking ahead to today, what are we looking at for today? It's mainly really about the week ahead as opposed to just today but markets starting the week navigating a very dense mix of information. So earlier in the week they will have the delayed US January payrolls report on Wednesday. That's going to offer an updated read on labor market resilience. Their job creation is expected to remain modest but steady. Additional signals will be getting from global data this week including Chinese inflation figures, UK growth indicators and eurozone GDP. They should all help to shape expectations for global demand momentum. And then on Friday macro economic attention will be centering very much on the US CPI report which will serve as a critical gauge of whether inflation continues to call at a gradual pace. Markets here are very sensitive to any upside surprises that could challenge expectations for continued monetary easing later this year. And then of course on Friday the week sending with the Munich Security Conference and that's likely to sharpen debate around NATO's strategic outlook and the war in Ukraine, underscoring persistent global security uncertainty. And the earnings season continues. We've got results, money financials, industrials, technology, consumer and oil and gas sectors. And Helen we've still got reports from some of the global heavyweights across banking, energy majors, consuming brands and technology firms. So they're going to be offering important insight into how companies are navigating cost pressures, demand normalization and capital spending trends. The last time I looked at the futures were pointing to a higher open today. So let's look forward to that I hope. Wonderful. Thank you very much Bernardette for the comprehensive roundup to start the week. Thanks for having me. Now let's talk in a bit more detail about the elections in Japan yesterday. Over to you, Lewis, welcome to the podcast. Good morning. Thanks for having me on. What does this landslide victory that we saw yesterday mean for the tech HE administration and the policies we're expecting to see now going forwards? Indeed it was a surprise landslide victory by the ruling liberal democratic party. So to give you guys some numbers, if you look at the House of Representatives, there were about 465 seats up for grabs. The liberal democratic party was initially targeting to win a simple majority by themselves. But for the LDP this time around the half actually got some 316 seats. So just by the LDP alone, even without its coalition partner, it has obtained a two-thirds super majority. And together with the Japan Innovation Party, its coalition partner with 36 seats, it is projected to have secured about 352 seats or 76% of the total. So now this is actually the best showing by the LDP in 70 year history. And essentially going into the elections with actually now the LDP having the Chair and majority representation at every sitting House Committee and the fact that they have a two-thirds super majority in the lower House, they will be able to set the legislative agenda, meaning to say that especially when you have bills which were rejected in the upper House, with the two-thirds majority they will now be able to actually veto that. So Sanianomics or the Prime Minister's legislative agenda, policy agenda, can now be very effectively put forward regardless of the opposition from the opposition parties, who have had a very poor showing with the largest opposition block the centuries reform alliance, only obtaining 49 seats versus the 172 seats to be shared had before. And what about the impact on Japanese government bonds and also the yen? What do we expect there? In the tool, if you look at the market reaction since the election results were out this morning, the dollar yen was little changed, it kind of came down slightly about 25 basis points or so. And actually unchanged from a week ago at about 156.8 thereabouts. If you look at the Japanese government one years, the 10 year year, it's just very slightly about four basis points or so to about 2.26% while if you look at the 30 year yield, there's just down by one basis points about 3.5%. Essentially all eyes will be on the upcoming fiscal year 2020 six budget, which will likely be passed in March given the slight delay with the elections that were being held recently. If you look at the 30 year bond sale from last Friday, that was actually pretty well covered with a bit to cover ratio of about 3.64 times versus 3.14 times at the last election, but because every other political party during the campaign has called for a consumption tax cut, that will be something to watch out for for the upcoming fiscal year 2020 six budget. And I think the key for fixing coming investors is to see how the government plans to finance. it lost revenues as a result of the proposed consumption tax cuts. On currency wise, I think interventions are still a possibility, but of course the outright interventions are likely only if again an outcome of the market betting on lower rates, weighing on the Japanese yen. So for now, we do expect the dollar yen to reach about 153 and 3 months and 149 and 12 months given the interest rate difference shows actually narrowing. Okay, and just finally then, we've seen Japanese equities rally this morning. What do you think this result means for Japanese equities a bit more longer term? There's definitely very strong showing by Japanese equities and if you look at both the indicator to 5M topics, both of them have reached fresh record highs. Essentially, if you look at the election results, they are seen by equity investors and a formation of the so-called Takaichi trade. And now that we have longer term political stability, now that the upper house elections, the next elections are only due in July, 2028, there will be more room for the Prime Minister and her cabinet to actually undertake for the fiscal expansion, undertake more of the policy interventions that she has articulated before. So we will expect the companies with exposure to the 17 previously identified strategic sectors of the Takaichi administration to be very clear beneficiaries, but otherwise, of course, the rising tide lifts our boats. The Japanese equity markets as a whole have been doing really well because of very favorable fundamentals given strong earnings performances and now that we have the political side of things actually well in place with the Takaichi administration still keen to support broader market growth. I think we do expect Japanese equity markets to continue its outperformance for the rest of 2036. Very good. Thank you very much, Lewis. Really good to get your insights this morning. And over to you now, Menzel, good morning. Good morning, Helen. Let's focus today on information technology, which is the worst performing sector so far this year. What's the technical view, Menzel? Yes, so the technical view on the information technology sector is quite weak. So most likely we have seen here a long-term peak, and we see especially the large cap stocks here on the performing, especially here at the Mugisficent 7. So here we think this trend continues and it's basically in line with a peak in the relative performance of US equities. And within technology, the biggest laggard has actually been software. It's down 18% year to date. What's your view here? Yes, software has been on the performing already most part of last year. And as always, it's a sector or segment which on the performs, which is always a risk to decline even more. And so that's why it was not too much surprising to see these losses in the past two weeks in software. And we think the damage is so big that this sector, even if it were to stabilize the best you could expect is for the sector to move sideways in nominal terms, but the sector needs a lot of time for a reversal or an improvement. And that's why the recommendation here for clients or investors is to stay on the sidelines and not try buying the deep here in software names. It's not only in the US, but in Europe as well, the picture is quite similar. Okay, and what about semiconductor stocks? Can they continue to outperform? Yes, so this is the complete opposite picture. On the semiconductor space, basically we see here in the memory segment, we see continued outperformance. And there we would recommend the opposite of software, we'd recommend investors to stay invested because it's not only in nominal terms that these stocks look good, they look good as well in relative terms. So we think there is further upside and outperforms ahead for this segment. Great, thanks very much, Ben, so I'm really good to hear from you again this morning. Thank you, Helen. So that is all for today. Thank you again to my guests and thank you all for tuning in. Don't forget to subscribe to the show if you haven't already and do join us again tomorrow when Bernadette will be back, but as your host, and she'll be talking to more of our colleagues about what is moving markets. Have a great start to the week everyone and bye for now. 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