The Nikkei 225 Index held steady at a crucial resistance level on Monday as investors waited for the upcoming talks between the US and Iran. It was trading at 59,045 yen, slightly below the year-to-date high of 59,519, with technicals sending mixed signals about its future.
This article explores some of the top catalysts for the index this week, and why it may have a bullish breakout as a cup and handle pattern forms.
Nikkei 225 Index steady despite rising tensions
Japanese stocks remained steady on Monday despite the elevated tensions between the US and Iran. The US has seized a large Iranian tanker, raising concerns about the recent truce.
At the same time, Iran announced the closing of the Strait of Hormuz, which led to a surge in crude oil prices, with Brent and the West Texas Intermediate (WTI) soaring to $95 and $92, respectively.
Japan is highly exposed to the rising oil prices because the country does not have many natural resources and it imports all its oil. As such, the rising tensions will make it more expensive do the country to get oil.
On the positive side, the ongoing posturing may be a negotiating tactic ahead of the talks that President Donald Trump announced on Sunday.
A deal between the two sides will be a bullish catalyst for the index as it will lead to lower oil and gas prices. It will also eliminate the ongoing tensions and push more investors to the stock market.
However, there is a risk that the two sides will not reach an agreement this week, leading to the resumption of the war between Iran and the US. Besides, the US has deployed thousands of troops in the region, while Iran has maintained that it was ready to resume fighting.
Japan macro data as BoJ rate hike talk continue
The Nikkei 225 Index will also react to the upcoming macro data from Japan, which will provide more hints on the impact of the war on the economy.
Japan’s statistics agency will publish the latest trade numbers on Wednesday. Economists expect the report to show that the country’s exports jumped by 11.1% in March, while the imports rose 7.1% from the previous 10.1%.
A higher export figure is bullish for the index because it sends a signal that the economy is doing well despite the ongoing war in Iran and the disruptions in supply chains.
Japan will also release the latest manufacturing and services PMI numbers, which will also shed light on the economic performance of the country. Economists expect the report to reveal that the two PMIs dropped slightly in March.
The most important data will come out on Friday when Japan releases the latest consumer inflation report, which will provide hints on the impact of the war. This report comes a week after the IMF urged the BoJ to hike interest rates this year.
Key Japanese and US corporate earnings
The Nikkei 225 Index will react to key earnings from some of the top Japanese companies this week. Some of the top ones that will publish their numbers are Fujitsu, Canon, Chugai Pharma, Fanuc, and Nonura.
The index will also react to the upcoming US earnings season, which will see hundreds of companies in the S&P 500 Index publish their financial results. Some of the most notable ones will be companies like Tesla, General Electric, Danaher, and Boeing. Historically, Japanese stocks tend to react to US earnings.
Nikkei 225 Index technical analysis
The daily timeframe chart shows that the Nikkei 225 Index has been in an uptrend in the past few weeks as the US-Iranian ceasefire continued.
A closer look shows that it has formed a cup and handle pattern, which is made up of a rounded bottom and some consolidation at the top. It is now in the handle section.
Therefore, the index will likely continue rising as bulls target the next key resistance level at ¥60,000.
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