Ok, so Shinzo Abe’s LDP suffered a stunning loss in Tokyo assembly elections over the weekend, winning their lowest number of seats ever, and that prompted calls for a cabinet reshuffle.
“It looks like a tough situation,” LDP Secretary General Toshihiro Nikai said on Sunday.
“This is major, it’s serious,” independent political analyst Minoru Morita added. “He will have to reshuffle the Cabinet, but that won’t resolve the situation. People are turning their backs on Abe and on the LDP.”
The amusing thing about this for the yen is that it initially rallied on a flight-to-safety bid. In other words, it’s a haven even when the reason for the flight to safety emanates from Japan. But right from the get-go it was apparent that the question was whether the loss would presage more fiscal stimulus, which would of course be yen negative (and equity positive). So this was the dilemma:
lol so yen will now have to decide between trading like a safe haven after Abe loss or trading lower on stimulus expectations
— Walter White (@heisenbergrpt) July 2, 2017
Ultimately, the yen erased early gains. Bloomberg noted early USDJPY selling by macro funds and leveraged accounts but apparently, “a lack of follow through from institutions” combined with a market that’s more focused on PMI data led the greenback to eventually trade at its strongest to the yen in more than six weeks.
It’s also worth noting that any potential cabinet reshuffle could have implications for Kuroda and the BoJ.
“A major cabinet reshuffle is needed for Abe and his ruling Liberal Democratic Party to regain public support ahead of a national election,” Credit Suisse’s chief Japan economist Hiromichi Shirakawa told Bloomberg by phone, adding that “if Chief Cabinet Secretary Yoshihide Suga, a key top official, changes, it may affect how the administration views the BOJ’s current and future strategy, possibly impacting its choice for next BOJ governor in 2018.”
For his part, Nobuyuki Nakahara, a former BOJ board member, has seen enough:
LOL: Abe’s Mentor Says BOJ Needs Fresh Face as Kuroda Is Out of Ideas
— Walter White (@heisenbergrpt) July 3, 2017
Japanese stocks were little changed. “Stocks are showing little reaction to Japan’s election as markets wait and see whether the result will have any impact on a national political level,” said Koji Fukaya, chief executive officer at Tokyo-based FPG Securities.
Meanwhile, Qatar has delivered its response to Saudi-led demands – where “delivered” means “handed over to Kuwait”.
Earlier, Doha was granted a 48-hour extension on the deadline that expired today. Qatari stocks rose 1.3% after falling the most since the crisis began on Sunday.
Trump spoke separately to Saudi Arabia King Salman bin Abdulaziz Al Saud, Abu Dhabi Crown Prince Mohamed bin Zayed Al Nahyan and Qatar Emir Tamim bin Hamad Al Thani, yesterday. I’m sure that helped.
According to the White House he “underscored that unity in the region is critical to accomplishing the Riyadh Summit’s goals of defeating terrorism and promoting regional stability.” Think about that for a minute. That’s a guy who tweeted a looped gif of himself pretending to clothesline the head of the WWE only with a CNN logo superimposed on his head, talking about how “unity” is necessary to achieve the goal of a summit on defeating Sunni extremism that was held in Riyadh, the epicenter of Sunni extremist ideology. There are quite literally so many ironies in there that you’d be hard pressed to list them all.
Oh, and the Qatar central bank wants you to know that the dollar peg is fine. “Qatar’s rial exchange rate is completely stable against the U.S. dollar,” the bank said in statement. It’s worth noting that those kinds of statements almost always convey the exact opposite of what they were trying to convey.
On to PMIs. China was up first and that went ok as the Caixin Media and Markit manufacturing index rose back above 50 (expansion territory) from 49.6 in May, which was the first time the index had slipped below 50 since June 2016.
In Europe, the IHS Markit print showed manufacturing activity expanding at the strongest pace in over six years:
“There’s no sign of the impressive performance ending any time soon,” Chris Williamson, chief business economist at IHS Markit gushed. “Optimism about the year ahead has risen to the highest for at least five years, backlogs of orders are building up at the fastest rate for over seven years and factories are reporting near-record hiring as they struggle to deal with the upturn in demand.”
That said, the country-by-country breakdown was less impressive versus consensus and the euro fell against the dollar suggesting the bar for further euro strength is pretty high after last week’s rally.
WTI is holding above $46 after the U.S. rig count fell last week for the first time since January.
“Oil prices are starting a new rally targeting $50/bbl,” HSH Nordbank analyst Jan Edelmann said Monday. “U.S. monthly production was revised lower and the rig count has slowed.”
Before you go getting any ideas, do take a moment to consider that one week of not-overtly-bearish data doesn’t really change the fundamental picture here.
Here’s a snapshot of global equities:
- Nikkei up 0.1% to 20,055.80
- Topix up 0.2% to 1,614.41
- Hang Seng Index up 0.08% to 25,784.17
- Shanghai Composite up 0.1% to 3,195.91
- Sensex up 0.8% to 31,173.55
- Australia S&P/ASX 200 down 0.7% to 5,684.49
- Kospi up 0.1% to 2,394.48
- FTSE 7340.99 28.27 0.39%
- DAX 12406.56 81.44 0.66%
- CAC 5172.25 51.57 1.01%
- IBEX 35 10540.10 95.60 0.92%