Asian equities made a mixed start to the week. Nikkei (-0.69%) and Topix (-0.89%) sold off as the Japanese GDP shrank 1.6% in the fourth quarter versus -1% expected by analysts and +0.4% printed a quarter earlier. This was the first economic contraction since the third quarter of 2018, the sharpest shrinkage since the second quarter of 2014 and didn’t even take into account the impact of the coronavirus.
Stocks in Shanghai (+2.28%) and Hong Kong (+0.52%) kicked off the week on a positive note, however, as Chinese and Hong Kong governments promised extra fiscal stimulus to fight back the economic slowdown caused by the coronavirus breakout.
IMF’s managing director Georgieva said that ‘the monetary space is shrinking and the reliance on fiscal measures as well as structural reforms to boost growth ought to be stronger’
Recently, the European Central Bank (ECB) President Christine Lagarde has also called European governments for putting their hands in their pockets to help ECB reaching its growth and inflation goals.
Hence, we may be at the beginning of an era where central banks start actively seeking governments’ help for boosting growth after more than a decade-long ultra-loose monetary policy couldn’t deliver the anticipated results worldwide. Yet it is unsure that most governments, which have already been fighting gigantic deficits, could do much to uplift growth.
Speaking of fiscal stimulus, the UK may lead the field as the British government is planning to spend more in the coming year to offer the smoothest Brexit possible to the country. And the new Chancellor Rishi Sunak is well placed to help putting Johnson’s plan in action starting from March. Higher spending should translate into a higher economic expansion and take the lower-rate pressure off the Bank of England’s (BoE) shoulders, at least for a while. This is perhaps what keeps the pound above the 1.30 mark against the US dollar.
The CFTC data revealed that investors increased their net speculative positions in Sterling last week.
On Wednesday, the January data should reveal an improved British inflation to 1.7% y-o-y from 1.4% printed a month earlier. The anticipation of a better inflation read following Boris Johnson’s victory in December should encourage GBP-bulls to strengthen their long positions above the 1.30 level into the data release.
FTSE futures (+0.27%) point at a marginally positive start in London.
The US will be closed today due to bank holiday.
The euro remains under a decent selling pressure as German ZEW survey (Tue) and German flash PMI figures (Fri) will likely hint that the business sentiment and manufacturing activity in Germany have further deteriorated in February as we start seeing the first implications of the coronavirus shock on the economy.