Imploding Confidence in Japanese Abenomics Infecting Other Global Markets

June 13, 2013

Amid huge doubts that meaningful deregulation will be implemented by Japan’s new LDP government, the Nikkei plunged another 6.4% overnight, and the yen touched a two-month high of 93.78/USD.  Since May 22, the Nikkei has lost 20.3%, and yen has recouped 10.6% versus the dollar.

Other Asian stock markets dived by 3.4% in China (following a 3-day holiday closure), 2.0% in Taiwan, 2.2% in Hong Kong, 1.9% in Indonesia, 1.4% in South Korea, 1.1% in India, and a whopping 6.8% in the Philippines.  The Nikkei’s point drop was 844 points.  In Europe, share prices are down 1.4% in Germany, 1.1% in Spain, 1.0% in Britain, and 0.7% in France.

Yesterday’s U.S. 10-year Treasury auction fetched a 2.21% yield, 40 basis points above the prior auction result.  Ten-year sovereign debt yields fell overnight by 3 bps in Japan and 2 bps in Britain and Germany.

The dollar is unchanged overnight against the euro, Swissie, sterling and yuan.  It shows net declines of 1.1% relative to the Australian dollar, 0.8% versus the yen, 0.6% against the loonie and 0.5% versus the kiwi.

Gold and oil prices have drifted 0.5% and 0.3% lower to $1385.30 per ounce and $95.64 per barrel.

Four central banks announced decisions already today, while announcements from Chile and Peru are still awaited.

  • The Reserve Bank of New Zealand’s Official Cash Rate was left at 2.5% as expected, and Governor Wheeler signaled it is likely to stay at that level, which has been in place since March 2011, for at least the rest of this year.
  • The Bank of Korea did not follow up on its 25-bp cut done in May.  The 7-day repo rate was instead unanimously left at 2.5% as analysts had predicted.
  • Bangko Sentral ng Pilipinas overnight borrowing and lending rates will stay at 3.5% and 5.5% as expected, their levels since a cut of 25 bps last October.  There was no further change in the Special Deposit Rate of 4.25%, which had been reduced in January, March and April.  Reserve requirements likewise were not modified.
  • Bank Indonesia, in contrast to central banks in New Zealand, Korea, and the Philippines, tightened policy unexpectedly.  The main BI rate was lifted by 25 basis points to 6.0%.  This hike followed an unexpected increase of the deposit facility rate to 4.25% done earlier this week and was the first increase of the BI rate since February 2011 when such was raised to 6.75% from 6.5%.  It subsequently was cut by 25 bps in October 2011, 50 bps in November 2011 and 25 bps to 5.75% in February 2012.  The tighter stance was prompted in large part by rupiah depreciation this year.

Central bank rates are expected to be left unchanged at 5.0% in Chile and 4.25% in Peru.

The quarterly Bank of England Bulletin makes some mixed remarks about the relationship between inflation and expected inflation but for the most part expresses comfort that the multi-year span of above-target actual CPI inflation will not lead to a spike in wages and that expected future inflation will stay reasonably anchored.

The World Bank revised downward its 2003 growth forecasts made in January.  Global GDP is now projected to rise 2.2% this year followed by 3.0% in 2014 and 3.3% in 2015.  The Ezone GDP projections are minus 0.6% in 2013, +0.9% in 2014 and +1.5% in 2015.  Chinese GDP is expected to rise 7.7% this year followed by 8.0% each in 2014 and 2015.  Growth in the United States is seen at 2.0% this year, 2.8% next year and 3.0% in 2015.  For all developing economies, the projected growth sequence is collectively 5.1% in 2013, 5.6% in 2014, and 5.7% in 2015.

Australian unemployment ticked down to 5.5% in May from an upwardly revised 5.6% in April.  Only 1.1K new jobs were created as a 5.3K decline in full-time workers nearly offset a 6.4K advance in part-timers.  Employment in March-April had risen on net by a combined 13.8K.  The labor participation rate slid a tenth percentage point to 65.2% in May.  The MI-TD measure of expected Australian inflation held steady at 2.3%.

Japanese stock and bond transactions generated a 442 billion yen net capital inflow last week, which was less than half of the prior week’s inflow.

Japan’s government upgraded its monthly economic assessment to “picking up steadily” from “picking up slowly” in the May assessment and “starting to pick up but with weakness in some areas,” which was declared in April.

The Swiss PPI/import price index fell 0.3% on month and 0.2% on year in May.  Both changes were lower than expected in this deflation-prone economy.  While domestic producer prices were 0.3% above a year earlier, import prices sank by 1.2% in spite of an exchange rate policy that doesn’t allow appreciation beyond 1.20 francs per euro.

Dutch retail sales fell on year by 2.7% in volume and 0.6% in value during April.  Such had dropped 5.3% in value in the year to March.

Greek unemployment climbed 1.4 percentage points to 27.4% in the first quarter from 26% in 4Q12.

German wholesale prices slid 0.4% in May, the third monthly drop in a row, and were 0.1% lower than in May 2012.  WPI inflation peaked in 2012 at 4.6% in October.  Fuel and mineral oil prices posted declines of 1.9% from April and 6.2% on year.

Irish consumer prices dipped 0.1% last month and to a 12-month increase of only 0.4%.

Wholesale turnover in South Africa was 7.2% greater in April than a year earlier but had dipped 0.5% in the year to March.

Scheduled U.S. data today feature retail sales and  include business inventories, import prices and weekly jobless claims.  Canadian home prices and capacity usage figures arrive.

Copyright 2013, Larry Greenberg.   All rights reserved.  No secondary distribution without express permission.


Comments are closed.