Japan GDP grew 0.3% qoq in Q2, above expectation of 0.2% qoq. The economy was back in growth after -1.0% qoq contraction in Q1. In annualized term, GDP grew 1.3%, above expectation of 0.7%.
Looking at some details, external demand contracted -0.3% qoq, versus expectation of -0.1% qoq. Capital expenditure rose 1.7% qoq, matched expectations. Private consumption grew 0.8% qoq, much better than expectation of -1.0% qoq. Price index dropped -0.7% yoy, worse than expectation of -0.4% yoy.
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Eurozone exports to the rest of the world rose 23.8% yoy to EUR 209.9B in June. Imports from the reset of the world rose 28.2% yoy to EUR 191.8B. As a result, Eurozone record a EUR 18.1B surplus, comparing to EUR 20.0B a year ago. Intra-Eurozone trade rose 24.6% yoy to EUR 188.0B.
In seasonally adjusted terms, Eurozone exports dropped -0.1% mom to EUR 197.7B. Imports was nearly unchanged at EUR 185.3B. Trade surplus narrowed to EUR 12.4B, down from EUR 13.8B, above expectation of EUR 9.3B.
New Zealand Dollar is one of the better performers this week, together with Australian and Canadian. Nevertheless, it’s just stuck in range against Dollar for now. NZD/USD is extending the range pattern from 0.6879. The failure to break through 55 day EMA firmly is keeping near term outlook mildly bearish.
Overall, price actions from 0.7463 are seen as correcting the whole up trend from 0.5467. Downside momentum is diminishing as seen in daily MACD. Hence, in case of another fall, strong support would likely be seen from 38.2% retracement of 0.5467 to 0.7463 at 0.6701 to contain downside. On the upside, break of 0.7104 resistance will suggest that the correction has completed and bring stronger rebound back to 0.7315/7463 resistance zone.
New Zealand BusinessNZ Performance of Manufacturing Index rose from 60.9 to 62.6 in July. That’s the second highest reading after March’s 63.6. Looking at some details, production rose from 64.4 to 66.0.. Employment rose from 56.7 to 58.3, a new record. New orders rose from 63.6 to 65.0. Finished stocks dropped from 57.4 to 56.9. Deliveries rose from 55.2 to 57.9.
However, the position of negative comments (51.4%) still remained higher than positive ones (48.6%). Increased domestic and overseas orders was the common factor for positive comments. In contrast, tight labor market, supply chain issues and raw material costs were the negatives.
BNZ Senior Economist, Craig Ebert stated that “while New Zealand’s PMI is doing exceptionally well, we are also conscious of the headwinds happening for global manufacturing.  This is on account of the resurgence of COVID19 in its delta strain.”
UK NIESR said, “with catch-up potential still evident in consumer-facing services and the continued effects of reopening, we expect growth in July of 1 per cent, and 2.4 per cent for the third quarter of 2021 overall.” But that reflected the assumption that Covid-19 cases will “continue to wane and remaining domestic restrictions imposed by governments and businesses will be lifted over the course of the third quarter.”
“GDP increased by 4.8 per cent in the second quarter of 2021, in line with our GDP tracker a month ago. More frequent visits to GPs meant that the health and social work sector was the largest contributor to June growth, while construction continued to slow after a strong start to the year. We expect growth to slow in the third quarter but still remain high by historical standards on the assumption of waning Covid-19 cases and lifting of all domestic restrictions by the end of the third quarter. It will be important to monitor the underlying growth rate of the economy as the opening-up effects dissipate.” Dr Hande Küçük Deputy Director – Macroeconomic Policy.
US PPI for final demand rose 1.0% mom in July, above expectation of 0.6% mom. Over that last 12 months, PPI accelerated to 7.8% yoy, up from 7.3% yoy, above expectation of 7.4% yoy. That’s the largest yoy rate since November 2010.
PPI for final demand less foods, energy and trade services rose 0.9% mom, largest rise since January. Over the last 12 months, PPI for final demand less foods, energy and trade services rose 6.1% yoy, highest since August 2014.
US initial jobless claims dropped -12k to 375k in the week ending August 7, above expectation of 367k. Four-week moving average of initial claims rose 1.75k to 396k.
Continuing claims dropped -114k to 2866k in the week ending July 31, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -100k to 3101k, lowest since March 21, 2020.
Eurozone industrial production dropped -0.3% mom in June, matched expectations. Production of capital goods fell by -1.5% and energy by -0.6%, while production of durable consumer goods and intermediate goods both rose by 0.1% and non-durable consumer goods by 1.6%.
EU industrial production dropped -0.2% mom. Among Member States for which data are available, the largest decreases were registered in Ireland (-4.4%), Portugal (-2.6%) and Denmark (-2.3%). The highest increases were observed in Malta (+5.2%), the Netherlands (+3.3%) and Estonia (+3.2%).
San Francisco Fed President Mary Daly said in an FT interview that she remained “very optimistic and positive”. She added, ” it’s appropriate to start discussing dialling back the level of accommodation that we’re giving the economy on a regular basis
“The starting point for that is of course asset purchases,” she said. “Talking about potentially tapering those later this year or early next year is where I’m at.”
On the employment markets, she said “we’re really adding enough jobs to see that we’re making progress towards our full employment goal.” While “we’re not there yet… we’re chipping away at the hole that was dug by Covid.”
UK GDP grew 1.0% mom in June, matched expectations. That’s the fifth consecutive month of growth, GDP remained -2.2% below it’s pre-pandemic level in February 2020. Services was the main contributor, growing 1.5% mom. Production, on the other hand, dropped -0.7% mom while contraction also dropped -1.3% mom.
For Q2 as a whole, GDP grew 4.8% qoq, still -4.4% below the pre-pandemic level in Q4, 2019. ONS said, “there were increases in nearly all main components of expenditure apart from “trade”, with the largest contribution from household consumption”.
Fitch affirmed Japan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A’ with a “negative” outlook. The ratings “balance the strengths of an advanced and wealthy economy, with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt”. The negative outlook reflected “uncertainty about the medium-term macroeconomic and fiscal outlook from the continuing pandemic”.
The rating agency expects economic growth of 22.5% in 2021 and 3.0% in 2022. But risks are to the downside, as the ongoing fifth Covid-19 wave may further delay recovery. Inflation is likely to “remain subdued”, averaging 0.3% in 2021 and 0.7% in 2022. Fitch also said BoJ is likely to  maintain its current monetary policy settings over the “next few years”.
DOW rose to close at new record high at 35484.97 overnight, up 0.62%. The slight moderation in core CPI in the US seemed to be welcome by investors. The development so far affirmed the view of the “transitory” camp in Fed. While it’s still on track for tapering, probably sooner than expected, there is still much room to wait-and-see before eventually raising interest rates, probably late next year.
Technically, the long term up trend in DOW now looks ready to enter into another near term acceleration phase. Outlook will stay bullish as long as this week’s low at 35041 holds. Next target is 61.8% projection of 26143.77 to 35091.56 from 33741.76 at 37159.81. We’ll see if DOW could hit this level within Q3.
Dallas Fed President Robert Kaplan said yesterday that if the economy unfolds between now and the September meeting as he expected, “I would be in favor of announcing a plan at the September meeting and beginning tapering in October.”
“The reason I’m saying we ought to begin the tapering soon is I think these purchases are very well equipped to stimulate demand. But we don’t have a demand problem in the economy,” he told CNBC.
“My thought is I’d rather take the foot off the accelerator soon and reduce the RPMs,” he added. “What I don’t want to do is keeping running at this speed for too long and then we’re going to have to take more aggressive action down the road.”
Kansas City Fed President Esther George said in a speech, “with the recovery underway, a transition from extraordinary monetary policy accommodation to more neutral settings must follow”. She added, “today’s tight economy… does signal that the time has come to dial back the settings” of monetary stimulus.
“While recognizing that special factors account for much of the current spike in inflation, the expectation of continued strong demand, a recovering labor market, and firm inflation expectations are consistent, in my view, with the Committee’s guidance regarding substantial further progress toward its objectives. I support bringing asset purchases to an end under these conditions,” she said.
Richmond Fed President Thomas Barkin said “we’re closing in” and he’s “very support of tapering and moving back toward a normal environment”. However, it’s credible to think “we will get there in the next few months” and he didn’t want to commit to a timetable yet.
“I would like to be at a normal level of participation in the asset markets and a normal level of rates,” Barkin said. But “I also think that as a committee, when you put out forward guidance you think about it carefully and then do your best to live to that.”
“On the employment side you have a hypothesis that you are going to bring a lot more back in. On inflation you have a hypothesis that these things are transitory,” he said. “I need to test both of these.”
US CPI rose 0.5% mom in July, matched expectations. Over the last 12 months, CPI rose 5.4% yoy, unchanged from June’s reading, above expectation of 5.3% yoy.
Core CPI, excluding food and energy, rose 0.3% mom, below expectation of 0.4% mom. Over the past 12 months, CPI core slowed to 4.3% yoy, down from 4.5% yoy, matched expectation.
Australia Westpac-MI consumer sentiment dropped -4.4% to 104.1 in August, down from July’s 108.8. It’s now at the lowest point in a year, but was well above the pandemic trough, and even above the levels over the twelve months prior to the pandemic.
Westpac said: “The virus situation locally is clearly troubling, but consumers appear reasonably confident that it will come back under control, and that once it does, the economy will see a return to robust growth.”
Westpac expects RBA to leave policy unchanged at next meeting on September 7. It added, “given its decision to sit pat in August despite a sharp deterioration to the near-term outlook, the hurdle for RBA action looks to be very high”. It also maintain the forecast that RBA would start raising the case rate in Q1 of 2023.
Chicago Fed President Charles Evans sounded more cautious than some of his FOMC colleagues in the topic of tapering. He acknowledged that the US is “making progress” and “well on our way” to substantial further progress. But, “I’d like to see a few more employment reports,” before making the decision.
“Everybody is wondering about September, November, December, January,” as possible dates to start scaling back asset purchases, Evans said. “I don’t think that one meeting on either side is going to have an important effect.”
“We should not preemptively end a strong improvement in the labor market because somebody is getting nervous about inflation,” he said. “I am going to be very regretful if we sort of claim victory on averaging 2% and then find ourselves in 2023 with about a 1.8% inflation rate … That would be a challenge for our long run framework.”
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China industrial production, retail sales, investment missed expectations
Industrial production rose 6.4% yoy in July, below expectation of 7.8% yoy. Retail sales rose 8.5% yoy, below expectation of 11.5% yoy. Fixed asset investment grew 10.3% ytd yoy, below expectation of 11.3% ytd yoy.
“Given the combined impact of sporadic local outbreaks of Covid-19 and natural disasters on the economy of some regions, the economic recovery is still unstable and uneven,” said NBS. “We should not only look at the growth to analyze the economic situation, but also need to look at the overall picture of employment, prices and residential incomes.”