Wall Street Gains Support Nikkei 225 Index, Caution Ahead Of US NFP Data

The US advance underpinned Japanese stocks on Friday, although there was a significant element of caution ahead of the US employment report.

US equity markets maintained a firm tone on Thursday with the benign PCE prices index reading increasing optimism that the Federal Reserve would be able to avoid aggressive policy tightening.

US Treasury Secretary Mnuchin was optimistic surrounding tax-reform prospects which underpinned equity markets, although he also commented that a weaker dollar was beneficial for the US trade account undermined the US currency and hampered Asian equity markets to some extent.

China’s Caixin PMI manufacturing index was stronger than expected with an increase to 51.6 for August from 51.1 the previous month which was the highest reading for 6 months.

In contrast, the final reading of the Japanese PMI index was lowered to 52.2 from the provisional 52.8.

Oil prices recovered ground which provided some degree of support to Japanese equities.

The Nikkei 225 index opened significantly higher following US gains, although prices gradually lost ground during the morning session. There were lows just above the 19,600 level after the session break, although there was an advance in late trading.

There was still an underlying tone of caution ahead of the monthly US employment report with markets braced for further underlying volatility across all asset classes.

Overall, the Nikkei index closed 45.23 points and 0.23% higher at 16,691.47.

There will be the threat of sharp opening gaps on Monday in reaction to the US data and geo-political factors will also be an important underlying factor.

Nikkei 225 Index 4-Hour Chart

nikkei01-09-17

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.