The Global Markets Weekly – 6/27/14

Posted June 27, 2014 by rvillareal

Japan’s Consumer Resilience

Current Japanese data are tracing out the path of the economy as it undergoes a payback for the pulling-forward of spending and production caused by the approach of the April 1 consumption-tax jump.  There were once serious worries, prompted by the 1997 experience, that the payback would knock the economy off track for quarters on end, but the healthy environment promoted by the first waves of Abenomics has eased those concerns, and early post-tax data are generally reassuring.[private]

The consumer sector is ground zero for consumption-tax effects, and movements there have been dramatic, with seasonally adjusted retail sales climbing 8.3% between December and March, and then dropping 13.6% in April.  But May data this week showed a 4.6% rebound, with the new level down just a bit more than 2% from December.  The payback seems nearly complete.

Importantly, consumer resilience is being bolstered by a very healthy labor market.   The May unemployment rate, in a surprise, declined by 0.1 point, firming support for wages, while the signal on labor demand, and on business confidence, given by the jobs-to-applicants ratio continued a steady strengthening, rising by another percent—on top of the five already accumulated since December.

• § U.S.: The key June employment report (Thu) will hold markets’ attention this week, with the ISM Manufacturing (Tue) and Non-Manufacturing (Thu) surveys providing June indications as well.
• § Eurozone: The ECB Council meeting (Thu) is more of a side-show than last time, its decision competing with US payroll data for attention.  The ECB will probably downplay the risk of genuine deflation, despite another likely soft set of Flash HICP data (Mon).
• § UK: Week Ahead: The BoE still seems to be putting more faith in what have proved to be repeatedly too-upbeat survey data, suggesting that recent GDP numbers will be revised up. Therefore, the June Manufacturing PMI (Tue) will be of key interest.
• § Japan: Two real-economy releases will strongly shape thinking about recovery from the second-quarter slump: most importantly, the BOJ Tankan (Tue), and, before that, May industrial production (Mon).
• § Emerging Markets/Regions: In China, The June HSBC PMI and the official PMI arrive.  Both are expected to indicate a mild improvement of industry’s situation.  In Korea, a mild upward trend of CPI inflation (Mon) is likely to be confirmed with the June figure close to 1.8% Y/Y (Consensus and DE).  In Mexico, the Institute of Financial Professionals Manufacturing PMI is due.  Ii is important to watch whether the improvement taking place during the first two months of the quarter is continued during the third.  For Brazil, June trade data (Mon) is the highlight.  A wider surplus is likely, as weekly data shows an improving trend in both exports and imports, but the latter have been more depressed than the former.  In Turkey, the June CPI result (Thu) is likely to be an improvement, with annual inflation dropping (Consensus: 8.8% Y/Y; DE: 8.6% Y/Y).

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