Japanese officials stepped up their rhetoric to weaken the yen this week after finance minister Taro Aso took a hard stand warning speculators of a one-sided trade. He said that the authorities could intervene in the markets if the yen continued to rise rapidly. The remarks came after the yen soared in early May after the Bank of Japan left monetary policy unchanged at its late April meeting. Earlier on Friday, BoJ Governor, Kuroda told the Parliament that the central bank could expand its monetary policy stimulus program to achieve its 2.0% inflation target.
Here’s a quick recap of this remainder of this week’s economic events that shaped the markets.
German GDP rises, but Eurozone GDP revised lower
Growth in the Eurozone grew less than initially expected in the first three months of the year, despite a strong GDP growth recorded from Germany. Data from Eurostat released on Friday showed that the gross domestic product increased 0.50% in the first quarter on a quarter over quarter basis, pushing the annualized growth rate to 2.10%. The initial estimates showed that the GDP grew at a pace of 0.60% q/q or 2.20% annualized. On a yearly basis, GDP growth in the euro area eased to 1.50% from 1.60%. Earlier in May, the EU Commission lowered its GDP forecasts for the Eurozone, expecting GDP to ease to 1.60% in 2016, from previous estimates of 1.70%.
EU Commissioner Pierre Moscovici said “European growth is holding up and (that) means that the efforts being made are paying off, (but) it’s time to speed things up“
Previously, German GDP data showed a strong first quarter growth as the Eurozone’s largest economy powered ahead with GDP rising 0.70% in the first three months of the year, pushing the annualized GDP growth rate to 2.70%. The impressive gains came from an increased domestic demand and consumption. However, officials expect to see the GDP growth eased in the second quarter, and economists note that Germany’s over-reliance on exports would not bode well and instead suggested that Germany expands on domestic spending such as infrastructure by taking advantage of the low rates in the region.
BoE warns on referendum risks
In the UK, the Bank of England met on Thursday for its monetary policy meeting and inflation report. While leaving interest rate at record lows of 0.50% and leaving the size of its asset purchases unchanged in a unanimous vote, the heightened uncertainty from the EU referendum vote saw the central bank take a cautious stand. The central bank said that any decision to part ways with the EU could lead to a “materially lower growth” and higher path for inflation. The central bank downgraded growth forecasts in its inflation report with the second quarter GDP seen to be at 0.30%, even slower from the first quarter’s 0.40% growth according to the initial estimates. Inflation in the UK is projected to rise steadily over the months, reaching 0.90% around September and is expected to reach 2.10% in the second quarter of 2018.
[Tweet ” Inflation in the UK is projected to rise steadily over the months, reaching 0.90% around September”]
Economic data from the UK this week saw industrial and manufacturing production data coming out moderately better on a month on month basis. Industrial production increased 0.30% in March reversing the 0.20% declines from February while manufacturing production inched 0.10% following a 0.90% decline in the previous month.
However, despite the short-term slump, some expect the Bank of England to start hiking rates as early as November should the UK vote to stay in the EU. Earlier this week, UK’s National Institute for Economic and Social Research, NIESR said that they expect the BoE to hike rates from November and continue into 2017, reaching 1.50%, or a full one percent hike from the current levels.
Samuel Tombs, chief UK economist at Pantheon Economics told CNBC in an interview that the consensus forecast was for a rate hike in 2017. He said “lending standards are slowly loosening, encouraging borrowers to take on even bigger loans. The stronger growth in credit is one thing that is going to be concerning the MPC. Banks are taking increasing risks now with their lending.“
US retail sales bounced back in April
Beating estimates of a 0.80% increase, US retail sales in April rose at the fastest pace in a year. Data from the US labor department showed the monthly gains of 1.30% after March’s 0.30% declines. The retail sales control core increased 0.90% beating estimates of a 0.40% with previous month revised from 0.10% to 0.20%. Excluding autos, retail sales jumped 0.80%, above the forecasts of 0.50% and last month’s number was revised from 0.20% to 0.40%. The gains in the retail sales came from autos, gasoline sales and non-retail sales including online retailers, underlying that the US consumers were back on a shopping spree in April. However, producer prices index for April remained tame, rising 0.20% following a 0.10% decline in March while staying flat on a year over year basis. Economic data from the US was quiet for the most part this week with the only major drag coming from Thursday’s weekly jobless claims which increased 294k above expectations of 277k.
Economic events this week
- BoJ releases monetary policy meeting minutes
- Japan average cash earnings y/y 1.40% vs. 0.60%
- Japan consumer confidence 40.8 vs. 40.8
- German factory orders m/m 1.90% vs. 0.70%
- Switzerland CPI m/m 0.30% vs. 0.20%
- China CPI y/y 2.30% vs. 2.30%; PPI y/y -3.40% vs. -3.80%
- UK Goods trade balance -11.2 billion vs. -11.2 billion
- RBNZ releases financial stability report
- UK manufacturing production m/m 0.10% vs. 0.40%
- UK industrial production m/m 0.30% vs. 0.50%
- US Crude oil inventories -3.4 million vs. 0.10 million
- Japan current account 1.89 trillion vs. 1.90 trillion
- BoE releases inflation report
- BoE keeps interest rate at 0.50%
- Canada NHPI m/m 0.20% vs. 0.30%
- US import prices m/m 0.30% vs. 0.60%
- New Zealand retail sales q/q 0.80% vs. 1.0%; core retail sales q/q 1.0% vs. 1.10%
- Germany preliminary GDP q/q 0.70% vs. 0.60%
- Eurozone flash GDP q/q 0.50% vs. 0.60%
- US core retail sales m/m 0.90% vs. 0.40%; retail sales 1.30% vs. 0.80%
- US PPI m/m 0.20% vs. 0.30%; core PPI m/m 0.10% vs. 0.10%
