It’s Friday and God said, “let there be data: and there was data.”
Let’s start in Europe, where inflation slowed to 1.3% y/y this month from 1.4% (final) in May. That’s a bit higher than estimates. The core rate printed at 1.1% y/y, that’s also a bit higher than forecast and higher than May’s 0.9% number.
So obviously that’s nowhere near the mandate, but fuck it, that’s fine because as Draghi said on Tuesday, in the statement that set the tone for the entire week, “while there are still factors that are weighing on the path of inflation, at present they are mainly temporary factors that typically the central bank can look through.”
“Although headline inflation came in higher than expected, today’s release confirms that inflationary pressures remain subdued in the euro zone,” Julien Lafargue, European equities strategist at JP Morgan Private Bank in London said. “The ECB is still not in a hurry. Yet the macroeconomic momentum remains supportive and core inflation is gradually recovering. As such the direction of travel for rates, however gradual it may be, is likely higher.”
The euro’s not super excited, but traders were already fading rallies headed into the print and besides, the single currency probably due for a breather after the week it’s had:
And it’s not just this week. The euro is headed for its best quarter since 2010 on what Bloomberg notes are “unfulfilled expectations over U.S. economic prospects and signs that the European Central Bank may be close to tapering shifted momentum in favor of the common currency.”
“Whether it’s because the ECB is simply running out of bonds to buy, or that a robust economic recovery indeed warrants a tighter monetary policy, investors are looking for a signal from President Mario Draghi as soon as the September meeting,” Bloomberg goes on to write.
Meanwhile, the dollar is coming off its worst three-day decline in more than a year.
Basically, the greenback is pricing in the end of monetary policy divergence and the political quagmire in Washington.
“While the Fed continues to tighten on a relatively predictable path, the recent shift in rhetoric from other central banks like the ECB, BOE and BOC has been a surprise to many and has driven a reassessment of their respective currencies,” Daniel Been, head of foreign- exchange research at Australia & New Zealand Banking Group Ltd. in Sydney said on Friday. “We expect this weakness will continue against currencies where central banks are shifting their biases.”
Getting back to the data, we got Japan CPI overnight as well. In short: it missed. Or most of did, but who’s really counting anymore? “It is low” – that’s pretty much all you need to know, but here are the numbers anyway:
- Japan May Core Consumer Prices Rise 0.4% Y/y; Est. +0.4%
- May CPI excluding energy, fresh food unchanged y/y; est. +0.1%
- May overall CPI +0.4% y/y; est. +0.5%
- Tokyo June core CPI which excludes fresh food unchanged y/y; est. +0.2%
- Tokyo June CPI excluding energy, fresh food -0.2% y/y; est. 0%
- Tokyo June overall CPI unchanged y/y; est. +0.3%
The yen’s holding up ok against the dollar as global jitters underpin safe-haven demand.
“Classic risk-off move is supporting the yen, despite softer-than-expected Japanese data that on its own suggest the BOJ is unlikely to take its foot off the easing pedal any time soon,” Rodrigo Catril, currency strategist at National Australia Bank notes.
Speaking of that, the BOJ released its bond auction plan for July and the purchase size and frequency for all maturities were unchanged from June, although there are obviously questions as to the viability of any BoJ plans because they’ve broken the market at this point, so hitting targets is increasingly difficult.
Finally, we got PMIs from China and the manufacturing number came in hot – sort of.
- China manufacturing PMI 51.7 vs 51.0 est; non-mfg 54.9 vs 54.5 prev
Obviously that could have been worse what with the considerable uncertainty surrounding the economic impact of the PBoC’s efforts to rein in shadow banking, but on the other hand, it comes from the NBS so there’s really no telling whether it’s made up or not.
“It means that momentum in the economy continues to be robust and we’ll have only a gradual slowdown at worst in the coming quarters,” Dariusz Kowalczyk, a senior emerging-market strategist at Credit Agricole CIB in Hong Kong, told Bloomberg TV. “China is doing very well.”
Right. Or maybe “China is saying China is doing very well,” is better.
Whatever the case, they’ll be able to trot this number out as evidence that they can continue to rein in leverage and speculation without denting the economy.
Asian equities were lower, on the heels of Wall Street’s Thursday losses, China being the one green exception. European shares rebounded.
- Nikkei down 0.9% to 20,033.43
- Topix down 0.8% to 1,611.90
- Hang Seng Index down 0.8% to 25,764.58
- Shanghai Composite up 0.1% to 3,192.43
- Sensex down 0.2% to 30,796.71
- Australia S&P/ASX 200 down 1.7% to 5,721.49
- Kospi down 0.2% to 2,391.79
- FTSE 7368.87 18.55 0.25%
- DAX 12453.89 37.70 0.30%
- CAC 5189.45 35.10 0.68%
- IBEX 35 10575.30 44.20 0.42%