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Daily Market Digest: Japan Industrial Production Rises and US Retail Sales Strong

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Japan’s industrial production was revised higher to 0.50%. In the UK, inflation numbers were tame, rising just 0.20% on the month. US retail sales were lower than April but better than forecasts with import prices also steadily rising.

Today’s Economic events

  • Australia NAB business confidence 3 vs. 5 previously
  • Australia NAB business conditions 10 vs. 9 previously
  • Japan industrial production m/m 0.50% vs. 0.40% y/y -3.30% vs. -3.50% previously
  • Japan capacity utilization m/m -1.0% vs. 3.20% previously
  • Switzerland PPI m/m 0.40% vs. 0.10%; y/y -1.20% vs. -1.50%
  • UK CPI m/m 0.20% vs. 0.30%; y/y 0.30% vs. 0.40%
  • UK Core CPI y/y 1.20% vs. 1.30%
  • UK PPI Input m/m 2.60% vs. 0.90%l PPI output m/m 0.10% vs. 0.30%
  • Eurozone industrial production m/m 1.10% vs. 0.80%; y/y 2.0% vs. 1.40%
  • US retail sales m/m 0.50% vs. 0.30%; retail sales control core m/m 0.40% vs. 0.30%
  • US retail sales excl. autos m/m 0.40% vs. 0.40%
  • US import price index m/m 1.40% vs. 0.70%; y/y -5.0% vs. -5.90%

Coming up

  • The US business inventories
  • ECB’s Mersch speech
  • New Zealand current account

Japan industrial production better than initially estimated

The final revision to the industrial production numbers from Japan saw a modest improvement, according to data from the Ministry of Economy, Trade and Industry. Final revision showed industrial production in Japan rising 0.50% in April on a month over month basis. This was better than the previous estimates of a 0.30% increase. Despite the improvement, industrial production remains down, compared to the 3.80% gains seen in March. Growth in shipments was revised higher to 1.60% from 1.50% previously while inventories remained unchanged, falling 1.70%. On a year over year basis, industrial production was down 3.30% in April; this was moderately better than the 3.50% decline in March.

Japan’s capacity utilization rate also showed a contraction, falling 0.20% on a month over month basis in April, extending the 0.10% declines in March.

The yen continues to remain strong amid mounting volatility surrounding the Brexit referendum which is now a week away. Mizuho Bank chief market economist Daisuke Karakama, in a note, said that the yen’s strength was not surprising. He said, “The market tone helps precede a stronger yen/a weaker dollar from every aspect.” The dollar fell to 105.93Yen earlier in the session with investors weighing the risks of the potential ‘Leave’ vote gaining a lead.

UK Consumer Inflation rises 0.30% on the year in May 2016

Data from the UK’s Office for National Statistics released today showed that consumer prices index (CPI) increased 0.30% in May 2016, unchanged from April. The core CPI increased 1.20%, rising at the same pace as in April. On a month over month basis, headline CPI increased 0.20%, up from April’s 0.10%.

Contributing to the increase in CPI were a rise in transport costs, restaurant and hotel bills and telecommunication services, but was offset by a dip in clothing, food and footwear prices. The nearly flat inflation is likely to ease pressure off the Bank of England when it meets on Thursday. In May, policy makers admitted that they “would face a trade-off between stabilising inflation on the one hand and output and employment on the other. The implications for the direction of monetary policy will depend on the relative magnitudes of the demand, supply and exchange rate effects.” The Bank of England is expected to hold monetary policy unchanged at its meeting this week.

Inflation in the UK has been undershooting the BoE’s 2.0% target inflation rate, consistently since December 2013. The sterling was muted to the data with the Brexit theme overshadowing the fundamentals as the June 23rd referendum edges closer.

US retail sales rises for the second month beats forecasts

US consumers continued to keep up their spending for the second month in a row. Retail sales at US retailers and restaurants rose 0.50% in May, from the previous month to a seasonally adjusted $455.64 billion. The data from the Commerce Department beat analysts expectations of a 0.30% increase. Retail sales in April was unrevised, confirming a 1.30% growth and the strongest advance since March of 2015. Compared to a year ago, retail sales are up 2.50%, running above the annual inflation rate of 1.0%.  The retail sales control core, which measures the total receipts of retail sales increased 0.40%, beating forecasts of 0.30%. April’s data was revised from 0.90% to 1.0%. Excluding autos, retail sales were up 0.40% as expected.

The retail sales data comes in stark contrast to the May jobs report which showed a slowdown in hiring as well as a downward revision to the prior two months of jobs reports.

The gains in the retail sales came with a 1.30% jump in non-store retail sales including online purchases, while sales at sporting goods, books and music stores increased 1.30% from April. Restaurant and bar sales, clothing store sales edged higher by 0.80%.

In a separate report, US import prices in May grew at the fastest pace since 2012, underlining that rising oil prices were contributing to strengthening inflation. Import prices in May increased 1.40%, marking a third consecutive month of increase. April’s import prices were revised higher from 0.30% to 0.70%.

The positive data comes ahead of the FOMC meeting due tomorrow where the markets expect the Fed to leave interest rates unchanged at 0.50%.

GBP could fall to $1.26 on Brexit – Rabobank*

Rabobank analysts caution that GBPUSD could potentially fall to $1.26 in the event of a Brexit vote in the referendum next week, while noting that EURGBP could reach 0.86. The analyst comments come as opinion polls continue to show the ‘Leave’ camp in favor, posing greater risks that the UK will vote to leave the EU. GBPUSD is already trading at a 2-month low. On the EURUSD, which has been fairly muted to the Brexit event so far, Rabobank notes that as the market starts to assess the impact of Brexit on a broader level, EURUSD could slide to $1.08. Rabobank’s EURUSD call comes after yesterday; Morgan Stanley issued a call for EURUSD testing $1.08.

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

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