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Daily Market Digest: EU Industrial output slows, BoE meeting

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Eurozone’s industrial production slowed to a 3-month low, falling 0.80% m/m. In the UK, the Bank of England left interest rate unchanged but lowered GDP forecasts for 2016 and expects inflation to reach 2.0% in mid-2018.

Today’s Economic events

  • Japan bank lending y/y 2.20% vs. 2.0% previously
  • Australia MI inflation expectations 3.20% vs. 3.60% previously
  • Japan economy watchers sentiment 43.5 vs. 44.90
  • Germany WPI m/m 0.30% vs. 0.20%
  • French final CPI m/m 0.10% vs. 0.10%
  • Eurozone industrial production m/m -0.80% vs. 0.10%
  • BoE leaves interest rate unchanged at 0.50%
  • Canada NHPI m/m 0.20% vs. 0.30%
  • US weekly unemployment claims 294k vs. 277k

Coming up

  • FOMC Member Rosengren Speech
  • FOMC Member George speech
  • FOMC Member Haldane speech
  • New Zealand retail sales q/q

Japan’s current account surplus widens in March

Data from Japan’s ministry of finance released early today showed that the economy posted a current account surplus of 2.98 trillion yen in the month of March, or rising 6.90% on the year. The data exceeded analyst expectations of 2.965 trillion yen and was higher than February’s 2.434 trillion yen. The trade balance data also showed a surplus of 927.2 billion yen, coming in above expectations. On a yearly basis, Japan’s exports fell 11.40% and imports fell 16.60% as the capital account showed a deficit of 23.3 billion yen. In a BoJ report, the central bank noted that bank lending increased 2.20% in April, extending the 2.0% increase in March.

The yen was very volatile in the first quarter of this year and fell to an 18-month low in April after the Bank of Japan left monetary policy unchanged. After Japan re-opened after a week-long holiday, officials were quick to ramp up their rhetoric, talking about yen intervention in a bid to stem the rapid appreciation in the currency. Earlier today, a former colleague of BoJ Governor Kuroda, Takatoshi Ito who currently works as a professor at Columbia University told Reuters that the Bank of Japan will most probably expand monetary policy stimulus at one of its next meetings, in June or July.

“Various inflation indicators are mixed. If all of them weaken and stock prices fall, the BOJ won’t hesitate to ease,” Ito said. Talking about the currency rate policies pursued by Tokyo, Ito noted that “Japan would at least need informal consent by G7 nations if it were to intervene. It won’t be able to intervene when there is strong resistance by the United States.”

Eurozone industrial production slows to a 3-month low

Industrial production in the Eurozone fell unexpectedly in March, data from Eurostat showed on Thursday. Industrial output fell 0.80% on a month on month basis, with all sectors except energy contracting from February. The decline of 0.80% comes against analysts who expected to see a flat print. Industrial production for February was revised to 1.20%. In March, energy production expanded 2.0% while intermediate goods output fell 0.80% and capital goods fell 1.10%. On a yearly basis, Eurozone’s industrial production eased 0.20% from a revised 1% in February, marking the slowest growth in three months and below the estimates of a 0.90% growth.

Stephen Brown, European economist at Capital Economics, said, “Today’s data and the ongoing weakness of industrial surveys support our view that overall eurozone economic growth is set to slow from 1.5 percent last year to about 1.2 percent this year.”

The declines in the industrial production surprised as earlier this week, Germany, France and Italy saw weak growth in industrial output.

BoE rate hike expectations pushed to 2018

The Bank of England in its monetary policy meeting today left interest rate at 0.50%, as widely expected. The central bank also released the inflation report where it noted that inflation could return to 2.0% only by 2018 and noted that the Brexit uncertainty was already weighing on the economy’s short-term growth outlook.

The inflation report said, “As the dampening influence of past falls in energy and food prices unwinds over the next year, inflation should rise mechanically. Spare capacity is projected to be eliminated by early next year, increasing domestic price pressures and supporting return of inflation to the 2% target by mid-2018”

The Bank of England cut 2016 growth forecasts from 2.20% to 2.0% and expects the economy to rise to 2.30%, down from 2.40% in earlier estimates. The Bank of England’s outlook contrasts sharply to what NIESR reported earlier this week where it said that the BoE could hike rates as early as November 2016 if the UK voted to stay in the EU. However, the latest inflation report from the BoE paints a dovish picture on rate hikes even if the UK voted to remain in the EU.

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