Daily Market Digest: Japan trade surplus, Eurozone flash PMI’s weaken

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Japan yen was stronger this morning after the weekend G7 summit saw investors ruling out yen intervention from BoJ. Trade surplus data from Japan also supported the view that the BoJ is unlikely to act in June.

Today’s Economic events

  • Japan trade balance 0.43 trillion vs. 0.27 trillion
  • Japan flash manufacturing PMI 47.6 vs. 48.3
  • Japan all industries activity m/m 0.10% vs. 0.70%
  • French flash manufacturing PMI 48.3 vs. 49.0
  • French flash services PMI 51.8 vs. 50.8
  • German flash manufacturing PMI 52.4 vs. 52.1
  • German flash services PMI 55.2 vs. 54.6
  • Eurozone flash manufacturing PMI 51.5 vs. 51.9
  • Eurozone flash services PMI 53.1 vs. 53.3
  • Eurozone flash composite PMI 52.9 vs. 53.2

Coming up

  • US flash services PMI
  • Eurozone consumer confidence

Japan, US do not see eye-to-eye on currency intervention

The G7 summit held in Sendai, Japan saw the month long verbal duel culminate with US and Japan agreeing to disagree. The US Treasury secretary said on the sidelines of the G7 summit that the currency moves in the yen was “orderly” and does not warrant any intervention from the central bank. On the other hand, Japan’s finance minister, Taro Aso said that the yen trade was one-sided and speculative, maintaining his stance that the exchange rate fluctuation in the yen remains “disorderly.”

Despite the disagreements, finance ministers at the G7 summit agreed on the importance of exchange rate stability. French Finance Minister Michel Sapin said, “There is a consensus that monetary policy is well-adapted and there are no big discrepancies in currencies, so there is no need to intervene.

Besides the topic of exchange rate stability, fiscal spending was also talked about. However, there was nothing concrete coming forth with Germany sticking to its austerity model against calls for renewed fiscal spending from US and Japan officials. German Finance Minister Wolfgang Schaeuble said, “The most important are structural reforms…there are more and more recognizing that structural reforms are crucial.

Eurozone flash PMI’s suggest weaker Q2 growth

Preliminary flash manufacturing and services PMI data from the Eurozone, released by Markit suggested that growth might have slowed into the second quarter of this year. Flash manufacturing PMI in the Eurozone was at 53.1 in May, unchanged from April’s 53.1 reading, while flash manufacturing PMI slowed to 51.5, down from 51.7 in April and missing estimates of an increase to 51.9. The flash composite PMI fell to 1 6-month low at 52.9, slipping from April’s 53 reading and below estimates of an increase to 53.2. The weak set of data comes just after last week; inflation report showed that the euro area was heading back to deflation.

Chris Williamson, chief economist at Markit, said “A disappointing flash eurozone PMI for May adds further to the suggestion that the robust pace of economic growth seen in the first quarter will prove temporary. The PMI is signaling lackluster GDP growth of only 0.3% in the second quarter.” The weak composite PMI also suggests that the second quarter Eurozone GDP could be weaker compared to Q1 GDP growth of 0.50%.

Greece digs deeper into austerity

Ahead of the Eurogroup meeting tomorrow where creditors are likely to decide on the next bailout for Greece, lawmakers in the debt-ridden nation have approved more austerity measures ahead of the meeting.

The new laws impose higher VAT, which has been increased from 23 percent to 24 percent and also abolished tax discounts on some island nations. Taxes were hiked widely on everyday use items including gasoline and diesel products as well as cutting social benefits for low pensioners. The move comes despite staunch opposition from other parties in Greece. However, differences remain between creditors as the IMF expects a debt relief package, something which Germany is staunchly opposed to. Earlier this month after the first set of austerity measures were reached, Eurogroup members sounded optimistic that the third bailout package would be approved before the end of May.

After passing the new austerity measures, Alexis Tsipras said: “Today’s parliamentary process leads us to the conclusion of the bailout review and to decisions on debt.” However, Nicholas Economides, a professor at Stern school of business said that the austerity measures will push the Greek economy further into recession. He said, “The Greek parliament approved significant increases in taxes and reductions in pensions, which are likely to intensify the recession, and also approved selling a large swath of state assets to partially pay for its debt.”

Institutional call of the day – Long USD/CAD, ING*

Analysts at ING advise long positions in USDCAD noting that the basis of monetary policy divergence outlook. ING analysts expect USDCAD to rise to 1.3370, compared to the current rate at 1.3129. Analysts note “We prefer tactical long USD positions against currencies where there is a clear divergence in the fundamental/monetary outlook” further adding that it aims to capitalize on the dovish BoC re-pricing. The Bank of Canada will be meeting for its monthly monetary policy meeting this Wednesday where no changes to interest rates are expected

* Institutional Call of the day is not a recommendation or an endorsement by Orbex.com to buy or sell


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