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Video / 04 January 2018 at 8:12 GMT

From the Floor: 'This is a major breakout' — #SaxoStrats

   • Japanese stocks rise 3% overnight, break through key 23,000 level
   • Dollar strength muted despite knockout ISM print, hawkish FOMC
   • Tesla shares turn lower as Model 3 deliveries miss the mark
   • NOK a rally candidate on rising oil prices, undervaluation
   • China Caixin services reading rises to 53.9 from under 52 last month

By Michael McKenna

On December 18, Saxo Bank's House View took a bullish stance on Japanese stocks, stating that "we expect the 23,000 level to be broken creating a massive breakout move".

Today, the Nikkei 225 shot 741.39 points higher to 23,506.33, a 20-year high that Saxo Bank equities head Peter Garnry says still has room to rise.

This is a major breakout," says Garnry, "and it comes as the market turns its focus to robotics and automation".

"Japanese firms are responsible for between 30% and 40% of global robotics revenues," adds Saxo's head of equity strategy, noting that the current rally could extend significantly on continued macro strength.

Nikkei 225

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Source: Saxo Bank 

This week's data release have certainly been in keeping with the strength trend, with China's Caixin services reading coming in at 53.9 overnight versus the sub-52 level one month prior. In the US, a knockout ISM manufacturing release Wednesday in which prices paid, new orders, and the overall index all surged higher was met with a limited USD reaction, even as the Federal Open Market Committee came out mildly hawkish on the day as well.

"This suggests that the market is just not seeing the dollar favourably," says Saxo Bank head of forex strategy John J Hardy.

Beyond USD, Hardy reports that EURNOK could be a pair to watch as rising oil prices and persistent undervaluation put focus on the Norwegian currency. "We could be looking at a test of prior cycle highs," says Saxo's FX chief.

Finally, Peter Garnry reports that Tesla shares are down 2% as the electric carmaker missed delivery expectations on its new Model 3 yet again; the firm has now delayed its 5,000 vehicles/week target until late Q2.

Tokyo tower
 Tokyo Tower or Nikkei 225 chart? Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank
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