U.S. Retail Sales, New BOJ Forecasts, and Some Euroland Data

July 16, 2021

Among today’s awaited events, U.S. retail sales will be reported within the half hour. Meantime, the Bank of Japan Board left policy settings unchanged and released new macro-economic forecasts. BOJ Governor Kuroda said economic activity will remain low for the time being as a result of the need for enhanced Covid restrictions. Revised Euroland CPI figures confirmed preliminary estimates of a 0.3% monthly CPI rise and a downtick of 0.1 pecentage points to 1.9% in on-year inflation. A further narrowing of the euro area’s trade surplus was also reported.

In overnight financial market action, share prices dropped 1.0% in Japan, 0.8% in Taiwan, and 0.7% in China. The price of gold fell 0.6%. WTI oil recouped 0.1% in what has been its weakest week in a couple of months. The ten-year U.S. Treasury yield rebounded two basis points but still shows a 4-basis point drop for the week. The ten-year JGB yield firmed a basis point, while its British and German counterparts slipped two and one basis points.

The dollar fell 0.5% against the Turkish lira and 0.4% versus the Mexican peso but on the whole remains buoyant, firming 0.3% against the yen, 0.2% versus the yuan and 0.1% relative to the euro and its DXY weighted index.

The Bank of Japan’s policy settings will remain at -0.1% on the short-term interest rate, around zero percent on the 10-year JGB yield to be maintained by purchasing “a necessary amount of Japanese government bonds (JGBs) without setting an upper limit.” Policy Board member Kataoka dissented in favor of augmenting policy stimulus, as he has repeatedly been doing for some time. The policy meeting lasted four hours 47 minutes and coincided with the publication of the quarterly Outlook for Economic Activity and Prices. Updated forecasts now project real GDP expanding 3.8% in the current fiscal year, which represents a downward revision of 0.2 percentage points, followed by growth of 2.7% in fiscal 2022, and 1.3% in fiscal 2023. Japanese fiscal years run from April through March. Projected consumer price inflation this fiscal year was raised a half a percentage point to 0.6%. Officials see consumer prices then accelerating to a 0.9% pace in FY 2o22 but just 1.0% in FY 2023. Alas, that is still less than half the pace that officials seek to achieve with the so-called pursuit of quantitative and qualitative easing with yield curve control. The commitment is to maintain this policy until core inflation exceeds the 2% longer run target in a stable manner.

The most newsworthy element of the Bank of Japan‘s July policy review was the unveiling of a green policy funding scheme entitled Fund-Provisioning Measure to Support Efforts on Climate Change. The ultimate size of this facility remains unspecified, and it will be primarily directed at domestic loans.

A 0.6% rise of U.S. retail sales last month was better than expected. Such followed a 1.7% drop in May and produced the smallest on-year increase (18.0%) in four months. Sales increased 6.2% on average last quarter and were 31.5% above the pandemic-starved level of 2Q 2020.

Other released data this Friday revealed the following:

New Zealand’s manufacturing purchasing managers index increased 2.1 points to a 3-month high of 60.7 in June, which compares to the record high of 63.6 in March.

Euroland unadjusted EUR 7.5 billion trade surplus in May was its smallest in 13 months and down from 8.9 billion euros in May 2020. Import growth outpaced export growth, but each exceeded 30.0%. Also, the year-to-May surplus of EUR 79.7 billion was 20.6% wider than the surplus in the first five months of 2020. The seasonally adjusted trade suplus fell to EUR 9.4 billion from readings of EUR 13.4 billion in April, EUR 17.9 billion in March, EUR 23.5 billion in February and EUR 28.1 billion in January. Exports fell 1.5% on month, while imports grew by 0.7% in May.

Consumer prices in the euro area rose 0.3% on month but decelerated from May’s 30-month high to 1.9% in June. Core CPI inflation also slid to a 2-month low of 0.9%.

New Zealand consumer price inflation more than doubled to 3.3% in the second quarter. That was the highest year-on-year pace since the third quarter of 2011 and up from 1.5% in 1Q 2021.

Portuguese producer prices only moved 0.2% higher in June, matching May’s monthly rise but not preventing a 1.2 percentage point acceleration of the 12-month rate of increase to a 250-month high of 8.9%.

Business confidence in Hong Kong had a positive reading (plus 6 in 3Q after zero in 2Q) for the first time in three years.

Still to come: the U. Michigan index of U.S. consumer sentiment and Canadian housing starts.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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