Daily Market Digest: G20, Japan exports, German Ifo

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• G20 members met in China over the weekend, reiterating the need for more fiscal stimulus
• Japan exports continue to slump, but imports fall at a faster pace
• Germany Ifo business confidence falls less than expected in July

Today’s Economic events

• Japan trade balance 0.33 trillion vs. 0.24 trillion
• German Ifo business climate 108.3 vs. 107.7
• UK CBI industrial order expectations -4 vs. -6

Coming Up

• New Zealand trade balance

China G20 meeting: Monetary policy cannot lead to growth

The G20 finance ministers and central banks met in Chengdu, China over the weekend. The focus was clearly on Brexit as members cautioned on the risks as IMF cut its global growth forecasts following the Brexit vote to leave the EU and heightened risks of prolonged negotiations between the EU and the UK.

Chinese Premier Li Keqiang said on on Friday and ahead of the G20 meeting that “Britain’s exit from the EU has brought new complexities to the world.” While Britain managed to overcome political uncertainty following the departure of David Cameron, many warn that the EU-UK negotiations will remain crucial. Angel Gurría, secretary-general of the Organization for Economic Cooperation and Development said, “The last thing we need now is more uncertainty. Unfortunately, it’s [Brexit] happened. It adds to the rough patch we already have.”

Besides Brexit, the G20 members also focused on the current monetary policies. Finance leaders repeated their commitment to avoid using the exchange rates as a tool to achieve a competitive advantage over others and vowed to consult closely on their respective exchange rate policies. The IMF and the G20 members expressed concerns that policy makers were relying too heavily on monetary policy to stoke growth, but said that economic restructuring and a boost to productivity and fiscal stimulus was needed.

Japan exports fall in June

Exports from Japan continued to come under pressure posting declines for the ninth consecutive month. The data released on Monday by the finance ministry showed that merchandise exports fell 7.40% in June compared to a year ago, to 6.026 trillion Yen. This followed May’s declines of 11.30%. The slump in exports for June was slightly better than analyst expectations of an 11.30% decline. The falling exports continued to reflect Japan’s manufacturing sector which has been struggling under a stronger yen. On a month over month basis, however, exports were up 1.30% from May and when adjusted for seasonal variations. Export volumes also increased 2.90% compared to a year ago which was encouraging.

Japan’s exports to the US the biggest export market for Japan fell 6.50% in June, extending its declines into the US markets for the fourth consecutive month. Exports to China fell 10.0% and to Europe, exports were down 0.40%. On the imports side, Japan’s imports were down 18.80% in June to 5.33 trillion yen, marking continued declines for over a year and a half. The trade balance in June posted a surplus as a result at 692.8 billion yen, higher than forecasts of 494 billion.

German business confidence falls in July

Business confidence in Germany fell to 108.3 in July from 108.7 in June, data from Ifo economic institute showed on Monday. Business morale slumped as executives turned less optimistic since the Brexit referendum. Market expectations were factoring in a slide to 107.50.

Ifo’s Clemens Fuest said, “This was due to far less optimistic business expectations on the part of companies. Assessments of the current business situation, by contrast, improved slightly. The German economy proves resilient,” in reference to the July print. The current conditions index was at 114.7, compared to the forecast of 114, while the expectations index fell to 102.2 in July, down from 103.1 in June but was above forecasts of 101.1

The data comes following last week’s ECB policy meeting where the central bank refrained from making any changes but noted that it would closely monitor the economic developments. The central bank reiterated that its monthly asset purchase of 80 billion euro would continue into March 2017 and could be extended if necessary. The euro remained flat on the German Ifo business and looked towards Wednesday’s FOMC meeting.