Japan’s 3rd Arrow Misses Target Ahead Of Services, ADP
Jeremy Cook | Jun 05, 2013 05:46AM ET
The Japanese PM Shinzo Abe has tried to outline the third prong of his government’s three prong attack on the country’s deflation and lack of growth. These measures are legislative as opposed to the first prong of loose monetary policy and the second comprising of fiscal stimulation.
The reaction has largely been one of disappointment with critics amounting the plan to tinkering and not wholesale change. Lower corporate taxes should help, although no figures were given, and liberalisation of electricity and pharmaceutical drugs markets should create competition, but in comparison to what the Bank of Japan is doing it seems rather small beer.
The market reaction has been largely negative with the Nikkei 225 moving lower through the Asian session and the yen strengthening across the board, pushing USDJPY back below 100.00.
Away from Japan the good data from the UK continued yesterday with retail sales rising 1.8% in May compared to this time last year, according to the British Retail Consortium. This stands against figures released last week that showed a marked decline in retail spending; chances are we are somewhere in between.
Likewise, the UK saw an unexpected rise in construction PMI this morning, posting the highest reading since October 2012. The large part of this increase was as a result of an boost in homebuilding following the government’s ‘Help to Buy’ scheme launched at the Budget that will see buyers of new housing receive government help; QE for the housing market as such.
The fears over the Fed’s possible withdrawal of its stimulus measures continues to worry markets globally with equities weak. As we said yesterday, the relationship between data and equity market moves remains upside down – bad data is good for stocks and vice versa.
Overnight the AUD has taken another broadside from traders after GDP numbers for Q1 disappointed. Output increased by 0.6% between January and March which was the slowest since 2011 and almost guarantees that a rate cut is pencilled in for the RBA’s next meeting in early July.
Data today will focus on the services sectors in the UK and Europe and the hopes are that we will see a similar recovery as what we saw on Monday in the manufacturing sector. The market is looking for the overall Eurozone measure to remain squarely below the 50.0 mark (expectation 47.5) and so the overall recession shows no sign of abating.
The UK’s number is due at 09.30 and the market is looking for the highest reading since August of last year. I’m sceptical of this and take the evidence from recent comments from service industry companies as proof that the sector is not close to the growth levels seen immediately after the Olympics in London. As with all things, I am happy to be proved wrong on this but a figure in the 52.0s will see GBP’s recent strength diminish somewhat.
Last Wednesday we saw USD weaken following some poor mortgage applications numbers and another reading is due at noon BST. The likelihood is that the market saves judgement on USD today until we receive the ADP employment numbers for May at 13.15 BST. The link between these numbers and payrolls is tenuous at best but a large beat or miss will see analysts revise estimates for Friday. The market is looking for 165k jobs to have been added.
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