Nikkei records its best weekly gains in five months

Analysts' estimates, according to IBES data, affiliated with the LSEG Group, showed that leading European companies are still heading towards achieving the strongest quarterly growth in their profits in four years.

According to data released on Thursday, companies listed on the European STOXX 600 index are expected to record an overall growth in profits of 25 percent during the third quarter, based on the results of 265 companies, as well as estimates of companies that have not yet announced their results, according to Reuters.

The bulk of this growth is due to the energy sector, whose profits are expected to jump by about 151 percent. Excluding this sector, total earnings are likely to grow by 10 percent, up from an estimate of 9.5 percent last week.

As for revenues, they are estimated to grow by 12 percent during the third quarter, decreasing to 7 percent when excluding the energy sector.

Analysts at UBS said in a note issued on Thursday that earnings momentum in Europe is based on the expansion of artificial intelligence applications, as well as government spending and consumption trends, expecting this path to continue through 2027.

The positive performance of companies was reflected in the movement of markets. European stocks hit a new record high on Thursday, continuing their gains supported by strong third-quarter results, the recent decline in energy prices, as well as a shift in investments away from shares of companies related to artificial intelligence in Asia and the United States.

On the corporate level, Siemens Industrial Technology Group shares rose by 1.7 percent, after the company raised its growth expectations in the medium term. The shares of Adecco Group, which specializes in employment services, also jumped by 14.7 percent, after announcing quarterly operating profits that exceeded analysts’ expectations.

Next week, investors' attention will be directed to the results of the French train manufacturer Alstom, among nine companies listed on the STOXX 600 index that are scheduled to announce their results.

Japanese stocks ended trading on a higher note on Friday, recording the strongest weekly gains in five months, supported by positive corporate results and renewed optimism in the artificial intelligence sector, despite the turmoil surrounding the American company “Nvidia”. On the other hand, Japanese government bond yields rose to their highest levels in weeks, influenced by the rise in US Treasury bond yields and increasing expectations of a rate hike.

The Nikkei index rose 0.53 percent to 61,142.35 points, achieving weekly gains of 6.46 percent, the largest since the week ending June 15. The broader Topix index also rose by 0.11 percent to 3,941.57 points, bringing its weekly gains to 6.3 percent, recording the best performance since mid-August 2024.

The Japanese market's gains came despite the decline in Nvidia's stock in American trading, and the accompanying pressure on Wall Street indices, while the rise in shares of Broadcom and Alphabet helped maintain investors' confidence in the broader prospects for artificial intelligence.

Chip stocks lead recovery

Japanese semiconductor companies recorded gains during early trading, before paring some of the gains near the close, coinciding with the weak performance of South Korean stocks. Advantest, which specializes in chip testing equipment, rose 2.08 percent, while Tokyo Electron rose 1.69 percent. On the other hand, SoftBank Group shares declined by 5.11 percent, indicating the continued disparity between the performance of companies related to artificial intelligence.

Maki Sawada, equity strategist at Nomura Securities, said that the recovery in semiconductor and artificial intelligence stocks, which had been under pressure for a relatively long period, was one of the main factors behind the weekly gains in the Nikkei and Topix indexes.

She added that the decline in Japanese stocks on Thursday, due to concerns related to Nvidia, helped prepare the market for recovery during Friday’s session.

The departure of Jensen Huang from the position of CEO of NVIDIA raised questions about the future direction of the company, and its potential repercussions on the US chip export policy and the possibility of access to the Chinese market.

Despite these concerns, gains for some US and Japanese technology companies indicate that investors are still distinguishing between company-specific risks and the prospects for demand for artificial intelligence infrastructure.

Friday's session was characterized by a relatively wide range of gains, as 132 stocks rose out of the 225 stock components of the Nikkei Index, compared to a decline of 91 stocks and two stocks remained stable. Sapporo Holdings topped the list of gainers, rising by 8.56 percent, followed by Trend Micro, which specializes in cybersecurity, which rose by 8.32 percent. Amada shares also rose by 7.59 percent.

On the other hand, “Merkari” stock recorded the largest relative loss, with a decline of 8.88 percent, followed by “Japan Steelworks” stock, which fell by 8.46 percent, then “Kawasaki Heavy Industries,” which lost 8.29 percent.

These moves reflect continued investor selectivity, even as major indices post strong weekly gains.

Bond yields rise to new highs

In the debt market, Japanese government bond yields jumped on Friday, tracking the rise in US Treasury yields overnight. The yield on Japanese benchmark ten-year bonds rose by seven basis points to 2.86 percent, the highest level since October 22. The five-year bond yield also rose by 5.5 basis points to 2.25 percent, after touching 2.265 percent, the highest level since October 29.

Bond yields move in the opposite direction to their prices, which means that rising yields reflect selling pressure in the debt market. The rise came after US President Donald Trump said that the United States does not need an agreement with Iran, coinciding with investors evaluating the possibilities of the Federal Reserve raising interest rates next month by a larger amount than usual.

The strength of the dollar increased pressure on Japanese markets, after the yen touched the level of 160 against the US currency during overnight trading, amid the continuing wide gap between interest rates in the two countries.

Hiroshi Watanabe, chief economist at Sony Financial Group, said that interest rate hike expectations are likely to strengthen, making bonds more vulnerable to selling pressure.

While Japanese stocks benefit from improved corporate results and renewed interest in artificial intelligence, the bond market faces pressures related to US monetary policy and a weak yen. The interest trend in the United States and Japan, along with developments in the technology sector, will remain a decisive factor in determining the Japanese market's ability to maintain its gains over the coming weeks.

The Budget Committee of the German Parliament approved the draft budget for 2027, including new borrowing exceeding 210 billion euros ($222 billion), the second highest level of borrowing since World War II, according to people familiar with the file, on Friday.

The committee approved the budget package, which includes spending worth 561 billion euros, in the early hours of Friday morning, after weeks of negotiations that saw plans to impose taxes on plastics and sweetened beverages abandoned or postponed, in addition to reversing some cuts in spending on social security, with the aim of reaching an agreement, according to Reuters.

The ruling coalition led by Chancellor Friedrich Merz pledged to intensify investments in Germany's basic infrastructure and rebuild its military capabilities, after decades of lack of investment. Last year, it also agreed to ease restrictions on borrowing to finance defense spending.

However, the coalition faced difficulties in reconciling the priorities of its two partners, the conservative Christian Democratic Party and the center-left Social Democratic Party, which formed the ruling coalition following last year's elections.

After the approval of the Budget Committee, the draft budget became ready to be presented to Parliament for approval. However, the opposition parties accused the government of resorting to “open tricks” to hide the amount of borrowing and spending allocated for basic aid.

Sebastian Schäfer, spokesman for the opposition Green Party on budget affairs, said in a statement: “This is not sound fiscal policy, but rather a broad attempt to mislead and obscure the facts.”

The figures showed that total new borrowing amounted to 210.4 billion euros, a level slightly below the record recorded in 2021 during the “Covid-19” pandemic, amounting to 215.4 billion euros.

This amount includes new borrowing of about 123 billion euros from the basic budget, which does not include additional borrowing allowed under special financing mechanisms approved last year to allow greater spending on infrastructure and defense.

As part of the understandings that paved the way for approving the budget, officials in the ruling coalition agreed, late on Wednesday, to cancel a proposed tax on plastic packaging materials, which the government had approved in July, and to postpone the imposition of a tax on sugar-sweetened beverages until 2028. It was also decided to postpone the reduction of the electricity tax, of which Meretz was one of the most prominent supporters.

The two partners also agreed to withdraw plans to reduce aid provided to children from low-income families.