Optimism rising high, soft landing on track

Investors start the new week with an ebullient mood after last Friday’s US jobs figures kept the “soft landing” story on track, lowering the dollar and bond yields, and adding fuel to the relentless “risk on” rally in stocks.

Most of the world’s main equity markets are at record or multi-year peaks, and there doesn’t seem to be much on the immediate horizon to derail them.

Profit-taking, quarter-end position adjustments, worries over valuations or market concentration, and political or policy jitters have all come into play recently. But the overpowering “buy the dip” mentality has ensured any pullbacks have been shallow and brief.

European politics may have some influence on early Asian trading on Monday – France was on course for a hung parliament in Sunday’s election, with a leftist alliance unexpectedly taking the top spot ahead of the far right in a major upset that was set to bar the far right, eurosceptic National Rally party from running the government.

Asia opens in good shape. Japan’s Nikkei 225 index scraped a new record high of 41,100 points on Friday and has risen some 7% in just two weeks, and the MSCI Emerging Market and MSCI Asia ex-Japan indices are at their highest in two years.

More broadly, the MSCI World, S&P 500, and Nasdaq all hit record highs last week, and last month euro zone stocks hit a 23-year high. Britain’s FTSE 100 hit a record high in May.

Monday’s Asia and Pacific calendar is light, with the spotlight on bank lending, trade and current account, and overtime pay figures from Japan. Philippines central bank governor Eli Remolona and finance secretary Ralph Recto speak at a business forum on Monday too.

Japan’s overtime pay isn’t usually seen as a top-tier indicator, but it is worth watching this month.

A recent labor union survey showed that firms offered to hike pay by 5.1% on average this year, the biggest increase in 33 years and far outpacing inflation now hovering around 2%. But figures on Friday showed that household spending plunged in May as higher prices continued to squeeze consumers’ purchasing power.

This is a headache for Bank of Japan policymakers who want to raise interest rates and have put great store on rising wages, but are worried about the impact on an economy that’s far from firing on all cylinders.

Looking ahead, the most market-sensitive events in Asia this week are likely to be central bank policy meetings in New Zealand, South Korea, and Malaysia, and producer and consumer price inflation figures from China.

The main market drivers globally are likely to be US CPI inflation on Thursday, and two days of Congressional testimony by Fed Chair Jerome Powell set for Tuesday and Wednesday.

Here are key developments that could provide more direction to markets on Monday:

– Japan wage growth (May)

– Japan current account (May)

– France general election

(Reporting by Jamie McGeever)