Japan household spending rose 4% yoy in May, highest in four years

    Japan overall household spending rose 4.0% yoy in May, well above expectation of 1.40% yoy. That’s the fastest pace in four years since May 2015. The results argued that pickup in consumption could help offset some weakness in external demand in Q2.

    However, spending ahead could be weighed down by sluggish wage growth ahead. Sentiments could also weaken on uncertainty over economic outlook, due to trade war. Additionally, the scheduled sales tax hike could also have negative impacts on spending.

    For now, Prime Minister Shinzo Abe is holding on to the plan to raise sales tax to 10% this October.

    UK PMI manufacturing rose to 54.4, rebound far from convincing

      UK PMI manufacturing rose to 54.4 in May, up from 53.9 and beat expectation of 53.5. Markit noted in the release that output growth ticks higher despite slower expansion of new work received. And, supply-chain constraints and cost pressures intensify.

      Rob Dobson, Director at IHS Markit, which compiles the survey:

      “At first glance, the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive outcomes given the backdrop of the slowdown seen in manufacturing since the turn of the year. However, scratch beneath the surface and the rebound in the PMI from April’s 17-month low is far from convincing.

      “A slowdown in new order inflows meant the expansion in production was achieved only by firms working through their backlogs of work. Weaker than expected sales meanwhile led to the largest rise in unsold stock in the survey’s 26-year history. This suggests that manufacturers have yet to fully adjust their production to the weakening trend in new business growth and there will need to be a rapid improvement in demand if output volumes are to be sustained in the coming months.

      “Manufacturers will also likely be constrained if the resurgence in both cost inflation and supply-chain pressures becomes more firmly embedded. Input price inflation accelerated for the first time since January as general cost increases, often linked to higher oil prices, were exacerbated by shortages of certain inputs. Average vendor lead times – a key bellwether of supply-side constraints – lengthened to the greatest extent during 2018 so far. These price and supply headwinds, combined with a further slowdown in new order growth, could jeopardise any further expansion of the manufacturing sector.”

      Full release here.

      BoE Bailey: Crypto creates an opportunity for the downright criminal

        BoE Governor Andrew Bailey criticized at a “Stop Scam” conference that’s cryptocurrencies created an “opportunity for the downright criminal.” He asked, “what do people committing ransom attacks usually demand payment in? The answer is crypto.”

        He also lamented that cryptocurrency users act as though national rules do not apply to them. “Some crypto enthusiasts say they shouldn’t be covered by Russian sanctions because that’s not their world,” he said. “I’m sorry, it is your world. We’re all in the same world.”

        Rees-Mogg could back May’s Brexit deal with reasonably effective time limit on Irish backstop.

          Jacob Rees-Mogg, a high profile Brexiteer Conservative, said that the could back Prime Minister Theresa May’s Brexit deal if there is a reasonably effective time limit on the Irish backstop.

          Rees-Mogg told BBC ratio that “I can live with the de facto removal of the backstop…. I mean that if there is a clear date that says the backstop ends, and that is in the text of the treaty or equivalent of the text of the treaty”.

          But he also insisted that the time limit should be “a short date, not a long date, then that would remove the backstop in the lifetime of parliament and that would have a reasonable effect from my point of view.”

          Canada retail sales rose 2.2% mom in May, and 0.3% mom in Jun

            Canada retail sales rose 2.2% mom to CAD 62.2m in May, above expectation of 1.6% mom. That’s the fifth consecutive growth where sales were up in 8 of 11 subsectors. Excluding gasoline stations and motor vehicles and parts, sales rose 0.6% mom.

            Statistics Canada estimated that sales increased 0.3% mom in June.

            Full release here.

            France PMI composite dropped to 52.7, a 9-month low

              France PMI Manufacturing ticked down from 55.6 to 55.5 in January, matched expectations. PMI Services dropped notably from 57.0 to 53.1, below expectation of 55.3, a 9-month low. PMI Composite dropped from 55.8 to 52.7, a 9-month low too.

              Joe Hayes, Senior Economist at IHS Markit said: “Given the surging number of daily COVID-19 cases we’ve seen in France, it’s no surprise to see softer PMI numbers in January…. Supply chain issues continue to impact the economy, particularly manufacturers, but we do appear to have seen the worst as delivery times lengthened to a far weaker extent than seen during much of 2021. That being said, the inflationary side effects remain in play and are being exacerbated by rising staff costs and energy prices.”

              Full release here.

              Japan exports dropped most in a decade in April

                In non seasonally adjusted term, Japan’s export dropped -21.9% yoy in April to JPY 5.2T. That’s the worst decline since 2008. Exports to US dropped a massive -37.8% yoy, worst since 2009. Exports to China dropped -4.1% yoy.

                Imports dropped -7.2% yoy to JPY 6.1T. Trade surplus came in at JPY 930B.

                In seasonally adjusted terms, exports dropped -10.4% mom to JPY 5.2T while imports rose 0.2% mom to 6.2T. Trade deficit widened to JPY -1.0T.

                SNB stands pat, upgrades 2021 and 2022 inflation forecasts

                  SNB kept the sight deposits rate unchanged at -0.75% as widely expected. It also remained “remains willing to intervene in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc”. The Swiss Franc “remains highly valued”.

                  The new conditional inflation forecasts for 2021 and 2022 were revised higher “primarily due to higher import prices, all all for oil products and for goods affected by global supply bottlenecks”. New forecast stands at 0.6% for 2021, 1.0% for 2022 and 0.6% for 2023, comparing to September forecasts of 0.5% for 2021, 0.7% for 2022, and 0.6% for 2023. They based on assumption that policy rate remains at -0.75% over the entire forecast horizon.

                  As for the economy, the baseline scenario is a “continuation of the economic recovery next year”. SNB expects GDP growth of around 3% for 2022 while unemployment is “likely to decline again somewhat”.

                  Full statement here.

                  BoJ Kuroda: Need to pay closer attention to loss of momentum in inflation

                    In a speech to BoJ regional branch managers, Governor Haruhiko Kuroda reiterated that the central bank won’t hesitate to add to current stimulus is needed. In particular, he emphasized, “we need to pay closer attention to the possibility that momentum towards achieving our price target will be lost.”

                    Nevertheless, Kuroda maintained that the economy is likely to continue expanding moderately as a trend, despite overseas slowdown. Inflation is currently moving around 0.5% and is expected to accelerate gradually towards 2%, on positive output gap and rises in inflation expectation.

                    He also said BoJ needs to monitor the effects of Saturday’s powerful typhoon on the real economy, maintain functioning and smooth settlement of funds.

                    RBA abandons yield curve control, hints on earlier hike

                      RBA kept cash rate target unchanged at 0.10% as widely expected today. The asset purchase program, however, will continue at AUD 4B per week until at least February 2022. However, without much surprise, it discontinue 0.10% target for April 2024 government bonds, effectively abandoning yield curve control.

                      As for forward guidance, RBA maintain that cash rate won’t be raised until actual inflation is “sustainably within the 2 to 3 per cent target range”. But now, it forecasts inflation to be no higher than 2.50% at the end of 2023, hinting that rate hike could come earlier than that.

                      In the new economic projection, RBA expects GDP growth to b 3% in 2021, 5.50% in 2022, and 2.50% in 2023. Unemployment rate is expected to trend lower to 4.25% at the end of 2022 and 4.00% at the end of 2023. Inflation is projected to be at 2.25% over 2021 and 2022, and pick up to 2.20% over 2023.

                      Full statement here.

                      ECB Praet: Patient, prudent and persistent monetary policy is still needed

                        In a speech titled Monetary and Macroprudential Policy Interactions, ECB chief economist Peter Praet said that the central bank’s monetary policy has been “effective in stabilising the euro area economy and creating conditions for a sustained adjustment of inflation towards below, but close to, 2% over the medium term.” But for now, “patient, prudent and persistent monetary policy is still needed” for the Eurozone right now.” And, at the same time and in particular at this stage of the monetary policy cycle, “the risk channel of our policy has to be closely monitored”.

                        Praet also explained that monetary policy enhances financial stability by “smoothing business cycles and keeping inflation expectations anchored”. Also, it provides “liquidity to solvent institutions in stressful situations.” However, as monetary policy operates amid uncertainty, “miscalibration is a possibility”. And Financial stability risks “mostly arise when the chosen policy interacts with distorted incentives in the financial sector” that “that lead to excessive leverage and maturity transformation, and funding fragilities”.

                        Full presentation here.

                        Japans’ export contracts in Jul, shipments to China fell for 8th month

                          Japan’s exports experienced a dip of -0.3% yoy to JPY 8725B in July. This contraction is noteworthy as it breaks a growth streak that has lasted for over two years since February 2021.

                          Diving deeper into the data, while shipments to US and Europe saw a positive trajectory with respective rises of 13.5% yoy and 12.4% yoy, the trade dynamics with China narrated a different story.

                          Exports to China, Japan’s primary trading ally, plummeted by -13.4%, marking the steepest decline since January. Notably, this reflects an ongoing trend with shipments to China diminishing for the eighth consecutive month, subsequent to a -10.9% yoy drop in June.

                          On the import front, Japan registered a decline of -13.5% yoy to JPY 8804B. This marks the fourth consecutive month of declining imports and is the most significant dip since September 2020. The downturn can be partly attributed to the decreasing commodities prices.

                          With imports exceeding exports, trade balance for the month ended in a deficit of JPY -78.7B.

                          When observing the figures in seasonally adjusted terms, both exports and imports displayed a 2.0% mom rise, amounting to JPY 8460B and JPY 9018B respectively. Consequently, trade deficit widened slightly, reaching JPY -557B.

                          UK Johnson failed to trigger election, accepted Brexit extension

                            UK Prime Minister Boris Johnson failed in his attempt for snap election, as he got only 299 votes in favor, well short of 424 needed, or two-third absolute majority. After the defeat, he told the parliament, “we will not allow this paralysis to continue and, one way or another, we must proceed straight to an election. This House cannot any longer keep this country hostage.”

                            Johnson would try an easier route on Tuesday, by proposing a one-line bill that changes the date of the next election to December 12. In this case, he only need a simple majority in the Commons, rather than two-thirds. However, other MPs could set conditions to on the change that Johnson might not like.

                            Earlier, Johnson wrote to European Council President Donald Tusk to accept the Brexit flextension granted. But he also emphasized, “this unwanted prolongation of the UK’s membership of the EU is damaging to our democracy.” “I would also urge EU member states to make clear that a further extension after 31st January is not possible. This is plenty of time to ratify our deal.”

                            Bitcoin recovery capped at 40k, started third leg of consolidation pattern

                              Current development, with break of a near term channel, suggests that bitcoin’s recovery from 30635 has completed at 40000 already. Consolidation pattern from 41964 high should have started the third leg. Deeper decline is now in favor back to 30635.

                              For now, we’d expect strong support around 30k psychological level to contain downside. In case of a deeper than expected correction, bitcoin could dip into support zone between 100% projection of 41964 to 30635 from 40000 at 28671 and 38.2% retracement of 17629 to 41964 at 26924, before making a bottom.

                              ECB Villeroy: Reasonable to have positive rates by year end

                                ECB Governing Council member Francois Villeroy de Galhau said, “the three conditions of our forward guidance on interest rates are, according to my personal judgment, fulfilled. Barring unforeseen new shocks, I would think it reasonable to have entered positive territory by the end of this year.”

                                But he’s vague on the timing of the first hike, as “while I wouldn’t preclude the next few Governing Council meetings, I would rather set a marker a bit further down the road.” He added the ECB’s push to normalize policy “will be guided by an active use of optionality and gradualism.”

                                On asset purchases, Villeroy said “seen from today the case for continuing to press the accelerator and adding further net purchases after June is not obvious.”

                                Japan Nikkei dropped -2%, as corrective pattern develops the third leg

                                  Japan’s Nikkei closed sharply lower by -2.07%, or -617.9pts, to 29174.15. Markets attribute the decline to many reasons, from the fire at semiconductor supplier Reneasas’ plant, to BoJ’s stop in purchasing Nikkei-linked ETFs, to surging US treasury yields, and even to the free fall in Turkish Lira.

                                  But technically, the sharp fall was seen as nothing more than the third leg of the consolidation pattern from 30714.52. There wasn’t remotely enough evidence to suggest a change in the medium term up trend from 16358.19.

                                  While deeper correction cannot be ruled out, the first line of defense will be from 55 day EMA (now at 28767.46). Sustained break of that would turn focus to channel support (now at 27170). We’d see how deep the correction would develop into.

                                  S&P 500 eyes 34179 resistance after post FOMC rebound

                                    Markets responded rather well to Fed’s rate hike, statement and new economic projections. In short, Fed raised federal funds rate target by 25bps to 0.25-0.50%. In the updated dot plot, 12 of the FOMC participants expected federal funds rate to reach 1.75-2.00% by then end of 2022, that is, 1.50% above the current level. The end point of current tightening cycle was also raised from 2.1% to 2.8%, and pulled ahead to 2023. Balance sheet runoff could start at a “coming meeting”, that is, May.

                                    Suggested readings on Fed

                                    Major stock indexes closed sharply higher overnight. S&P 500 is now having 34179.07 near term resistance in radar. Firm break there will argue that the pull back from 36952.65 has completed with three waves down to 32272.64 already. Stronger rally would then be seen be seen back to retest 36952.65 high.

                                    The strong support from 23.6% retracement of 18213.65 to 36952.65 at 32530.24, which is a rather bullish sign from long term perspective. Even though break of 36952.65 high is not expected at the first attempt. The range for consolidation could have been set already.

                                    Defence spending and burden-sharing high on the agenda at NATO summit

                                      “Defence spending and burden-sharing will be high on the agenda” as NATO said in a statement released ahead of the summit of the 29 Allies in Brussels today and tomorrow (July 11, 12). NATO Secretary General Jens Stoltenberg noted that “we expect 8 Allies to spend at least 2 percent of GDP on defence this year, compared to just 3 Allies in 2014.” In additional, he estimated that European Allies and Canada will add an “extra 266 billion US dollar” to defence between now and 2024.

                                      But a showdown is expected in the summit as US President Donald Trump continued to blasts his own allies ahead of the meeting.

                                      He tweeted yesterday:

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                                      That was followed by European Council President Donald Tusk’s unusually blunt response:

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                                      Trump then followed up by:

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                                      US initial jobless claims dropped to 684k, continuing claims down to 3.9m

                                        US initial jobless claims dropped -97k to 684k in the week ending March 20. Four-week moving average of initial claims dropped -13k to 736k.

                                        Continuing claims dropped -264k to 3870 in the week ending March 13. Four-week moving average of continuing claims dropped -137k to 4121k.

                                        Full release here.

                                        Fed Daly: Case can be made for either 25 or 50 next

                                          San Francisco Fed President Mary Daly said in a WSJ interview that she expects interest rate to rise from the current 4.25-4.50% to 5.00-5.25%. But she added that “doing it in more gradual steps does give you the ability to respond to incoming information.”

                                          Daly said the “case can be made for either” a 25bps or 50bps hike in February. But at the same time, “I want to be data dependent, not wall off a 50 basis point increase.”

                                          She expects unemployment to rise from current 3.5% to 4.5-4.6% as tightening continues. Inflation, now running at 5.5%, will fall to low 3% range by the end of 2023, and closer to 2% in 2024.