A phenomenal run of 16 straight gains finally ended in Tokyo yesterday as a late bout of profit-taking saw the Nikkei close in negative territory for the first time this month.
However, most other Asian markets rose following another record close on Wall Street, as a fresh round of strong corporate earnings reinforced confidence in the global economy.
Caterpillar, considered a bellwether of economic optimism, and industrial giant 3M both posted healthy reports, helping the Dow to a sixth straight record in seven trading days.
The news boosted hopes for other companies as the earnings season gets into full swing.
“Last night’s report from Caterpillar, which beat profit and sales estimates, underwrote what has been improved sentiment about the outlook for global growth,” said Greg McKenna, chief market strategist at AxiTrader, in a note.
Japanese shares ended the morning higher, putting them on course to extend a run never seen since the Nikkei’s creation almost 70 years ago.
However, traders who had helped push the market up more than 5% since September 29 decided to cash out in the afternoon and Tokyo ended down 0.5%.
The run had been fuelled by hopes that re-elected Prime Minister Shinzo Abe would push ahead with further economy-boosting measures as well by continuing weakness in the yen against the dollar.
“It’s no surprise to see the steam expire after days of rallies, as investors might want to take profit,” said Hideyuki Suzuki, head of investment information department at SBI Securities.
Elsewhere in Asia, Hong Kong added 0.5% following two days of losses. Shanghai closed up 0.3% after China’s President Xi Jinping unveiled his top decision-making body. This contained no potential successor, raising speculation he intends to stay on past the end of his second five-year term as ruling party chief.
Sydney, Seoul and Taipei each gained 0.1% and Singapore was marginally higher.
The dollar largely held its gains from last week’s passage of a key budget bill that smoothed the way for Donald Trump’s tax cuts.
But investors are watching events in Washington as the president deals with fractious members of his own Republican party.
“The big news is that House Republicans are now scheduled to release a full tax reform bill to the public next Wednesday, but Senate mutter tempered the mood as Republican Senators Bob Corker, John McCain, Rand Paul may not support tax overhaul,” said Stephen Innes, head of Asia Pacific trading at OANDA.
The euro is also in focus ahead of the European Central Bank’s policy meeting Thursday, at which it is expected to announce a big reduction in its bond-buying stimulus as the eurozone economy picks up.
But the Catalan independence crisis in Spain, one of the eurozone’s biggest economies, continues to play on nerves.
Dealers are also awaiting Trump’s decision on who will run the Fed when Janet Yellen’s term ends early next year
Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers, said that of the two frontrunners Stanford University professor John Taylor, a hawk, would be bad for markets as he would push for higher rates quicker.
But Jerome Powell, he added, would likely offer more of the same of the present policy of gradual rises.
In Tokyo, the Nikkei 225 closed down 0.5% at 21,707.62 points; Hong Kong — Hang Seng rose 0.5% at 28,302.89 points and Shanghai — Composite ended up 0.3% at 3,396.90 points yesterday.