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Daily Market Digest: Yen falls as sales tax hike postponed. French GDP higher

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Image via federalreserve/Flickr: Current and Former FRB St. Louis Presidents (Left to Right: Theodore H. Roberts; James B. Bullard; William Poole; Thomas C. Melzer)

The Japanese Yen fell sharply on Monday’s Asian trading as the proposed sales tax hike was postponed by two and a half years. French GDP for the first quarter was revised higher than the initial estimates. US and UK markets are closed today.

Today’s Economic events

  • Japan retail sales y/y -0.80% vs. -1.20%
  • FOMC Member Bullard speech
  • Australia new home sales m/m -4.70% vs. 8.90% previously
  • Australia company operating profits q/q -4.70% vs. 0.50%
  • Germany import prices m/m -0.10% vs. 0.40%
  • Germany preliminary CPI m/m 0.30% vs. 0.30%
  • French consumer spending m/m -0.10% vs. 0.10%
  • Swiss KOF economic barometer 102.9 vs. 102.9
  • Spain flash CPI y/y -1.0% vs. -1.0%
  • Canada current account -16.8 billion vs. -17.4 billion
  • Canada RMPI m/m 0.70% vs. 2.20%; IPPI m/m -0.50% vs. 0.20%

Coming up

  • New Zealand building consents

Bullard: Markets well prepared for a summer rate hike

James Bullard, the St. Louis Federal Reserve President speaking at an event in Seoul, South Korea said on Monday that the global markets were well prepared for a summer rate hike from the Fed. He, however, refrained from specifying a date for the next policy move.

“My sense is that markets are well-prepared for a possible rate increase globally, and that this is not too surprising given our liftoff from December and the policy of the committee which has been to try to normalize rates slowly and gradually over time,” Bullard said at a news conference. His comments come after Friday’s revised US GDP for the first quarter showed that the economy grew a pace of 0.80%, more than the 0.50% increase from the initial estimates. Bullard said that a rebound in the US GDP growth could materialize in the second quarter.

On Friday, following the GDP revision, Fed Chair, Janet Yellen spoke at the Harvard University where she came out hawkish than expected, noting that a rate hike would be appropriate over the following months. Investors are currently looking at the June/July FOMC meetings as the next possible dates for the Fed to hike the Fed funds rate.

Abe postpones sales tax hike to October 2019

News reports earlier today showed that Japanese Premier, Shinzo Abe decided to delay the proposed sales tax hike by two and a half years, until October 2019. The sales tax was previously planned to come into effect in April 2017, hiking the consumption tax from 8% to 10%. After Abe’s Liberal Democratic Party and its coalition partner had agreed, the decision was announced.

The yen weakened as a result in early Asian trading today. USDJPY was seen trading above 111Yen while GBPJPY managed to break above the 162.5 handle. The yen also weakened as investors in Asia bid up the US dollar following Friday’s hawkish comments from Fed Chair Janet Yellen. “From earlier in the morning, there has been [dollar] buying from Tokyo-based investors who missed a chance to buy,” Osao Iizuka, head of Fx trading at Sumitomo Mitsui Banking Corp. said.

Earlier on Monday, the monthly retail sales report released by the Ministry of Economy, Trade and Industry showed that retail sales fell 0.80% on a year over year basis in April, beating forecasts of a 1.20% decline. April’s retail sales moderated following the 1.0% decline in March. On a seasonally adjusted basis, monthly retail sales remained flat after rising 1.50% in March.

French GDP higher but consumer spending weak

The second revision to the first quarter GDP growth from France showed that the economy expanded at a pace of 0.60%, up from 0.50% growth recorded in the preliminary estimates. Data from French statistics agency Insee showed on Monday that on a year over year basis, French GDP grew 1.40%, up from 1.30% previous estimates. The revised GDP numbers come after Friday’s French consumer confidence index rose to a 15-month high.

“Growth in the first quarter came on solid domestic demand which managed to offset the negative contribution from the external sectors,” Jean-Philippe Pourcelot an economist with Focus Economics said. The government expects economic growth of 1.50% in 2016 and in 2017.

However, consumer spending, on the other hand, remained weak. In April, French consumers spent less on food, cars, and refined oil products pushing consumer spending 0.10% lower for the month. The data missed expectations of a 0.10% increase. Despite the decline on a month over month basis, French consumer spending in April was higher at 2.50% for the year. March’s numbers were also revised higher to 1.10% compared to previous estimates of 0.20% on a month over month basis.

Canada’s current account widens in Q1

Current account deficit for Canada widened more than expected in the first quarter of 2016, data from Statistics Canada showed on Monday. The country’s Current account deficit expanded to 16.77 billion and was closely in line with median estimates of 16.8 billion. The previous quarter’s current account deficit was revised higher to 17.71 billion.

In a separate report, Canada’s producer price index fell unexpectedly in April on lower prices for motor vehicles, while the raw materials price index increased on Crude Oil’s price rally. PPI fell 0.50% in April, which surprised to the downside. Economists were expecting a 0.90% gain on the month. The declines in the PPI came with a 2.20% drop in automobiles and light trucks. Statistics Canada said that the fall in vehicle prices was closely tied to the gains in the Canadian dollar. Canadian PPI decreased 1.60% in April on a year over year basis.

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