Japan posted a surprise rebound in the annualized GDP growth in the first quarter. UK’s unemployment rate remained unchanged at 5.10% showing signs that the labor market was cooling off. The Eurozone’s inflation report showed the region slipping back into deflation while FOMC meeting minutes will be key for the markets today.
Today’s Economic events
- Japan preliminary GDP q/q 0.40% vs. 0.10%; y/y 1.70% vs. 0.30%
- Australia MI leading index m/m 0.20% vs. -0.10% previously
- Australia wage price index q/q 0.40% vs. 0.50%
- UK average earnings index 3m/y 2.0% vs. 1.70%
- UK unemployment rate 5.10% vs. 5.10%
- UK claimant count change -2.4k vs. 4.0k
- Eurozone final CPI y/y -0.20% vs. -0.20%; core CPI y/y 0.70% vs. 0.70%
- Crude Oil inventories
- FOMC meeting minutes
Japan’s annualized GDP growth rate edges higher
Japan’s economy posted a surprise in the first quarter of the year with the annualized GDP rising 1.70%, beating the estimates of a 0.30% increase by a strong margin and sending positive signals to policy makers. On a quarter over quarter basis, Japan’s GDP increased 0.40% reversing the previous quarter’s contraction and avoiding a technical recession. The GDP data suggests that the Japanese economy is growing faster and above its 0.50% average trend.
Private consumption contributed nearly 1 percent to the annualized growth rate while government consumption added 0.60% with trade adding another 0.80%. However, investments continued to fall which managed to post a 0.90% drag on the GDP. Following the release, Nomura’s chief economist Takashi Miwa said that “with a slower than expected recovery in China and other overseas economies, Japan was likely to revert to flat or negative growth in the second quarter.” He said that the strength in the first quarter figures was not backed by actual economic conditions. The GDP report is subject to further revisions.
UK unemployment rate unchanged at 5.10%
Labor market data released by the UK’s Office for National Statistics today showed that the UK’s unemployment rate was unchanged at 5.10% as expected by economists. Employment rate also increased modestly higher to 74.20% in the three months ending April marking the highest level of employment since 1971. The average earnings for employees increased by a modest 2.0% including bonuses and beat estimates of 1.70% increase. Last month’s number was also revised higher to 1.90% from initial estimates of 1.80%. Excluding bonuses, average earnings increased 2.10%.
For the three months ending March, the claimant count change fell 2.4k against analyst expectations of a 4k increase.
Commenting on the latest labor market data, IHS economist Howard Archer said the numbers were “softish, but not as bad as feared.” He added that “the labor market is currently essentially treading water amid increased business caution and uncertainty ahead of June’s referendum on U.K. membership of the EU.“
Deflation is back in the Eurozone
Consumer price index in the Eurozone slipped back into deflation in April falling 0.20% on an annualized basis, data from Eurostat showed earlier today. The 0.20% decline in inflation comes after March’s flat reading. On a month over month basis, inflation was flat at zero percent in April, stalling after March’s 1.20% increase. The core CPI excluding food and energy rose 0.70% on the month, same as in March.
The euro remained weaker, for the most part, today falling to 1.126 after the inflation report was released. Compared to the latest inflation reports from the US, the comeback of deflationary pressures in the eurozone, combined with the monetary policy divergence between the Federal Reserve and the ECB could keep the single currency under pressure.
Markets await FOMC meeting minutes
The main event for today will be the FOMC meeting minutes, going by the price action over the past days which saw the euro trading in small ranges. The dollar already got a boost after yesterday’s inflation data showed an upside surprise. Fed officials also weighed in with their hawkish comments suggesting that a summer rate hike was possible. The April Fed meeting saw interest rates staying unchanged with just one dissenter voting for a rate hike. The Fed also lowered its risk outlook on the global economy. Since the last Fed meeting, the unemployment report in the US was rather soft, but other economic indicators started to show a turn around with a pickup in retail sales, inflation and industrial production. The markets have currently priced in a lower probability of a rate hike in June as the meeting also coincides with Britain’s EU membership referendum, leaving the door open for another hike in August. The CME Group’s Fed Watch showed the June odds for a rate hike increase to 15% from 4.0% previously.
San Francisco Fed President John Williams told Wall Street Journal that “I think that the data to my mind are lining up to make a good case for rate increases in the next few meetings, not just June, which means it’s very live in terms of that.“.