Market Summary
- Japan GDP growth in Q2 stays flat
- BoJ lowers CPI, based on new base year and formula
- BoE’s Chief economist, Andy Haldane defends central bank’s policies
- European markets quiet on account of regional bank holiday
- US Empire state manufacturing index falls to -4.2
Today’s Economic events
- UK Rightmove HPI m/m -1.20% vs. -0.90%
- Japan preliminary GDP q/q 0.0% vs. 0.20%
- Japan preliminary GDP price index y/y 0.80% vs. 0.70%
- Japan revised industrial production m/m 2.30% vs. 1.90%
- Switzerland PPI m/m -010% vs. -0.20%
- US Empire state manufacturing index -4.2 vs. 2.1
Japan Q2 growth stays flat; industrial production revised higher
Gross domestic product in Japan during the second quarter was flat on a seasonally adjusted basis, data from Japan’s Cabinet Office showed on Monday. The Q2 flat growth was below estimates of a 0.20% increase and following Q1’s GDP growth of 0.50%. On a year over year basis, Japan’s GDP was seen expanding at a pace of 0.20% which missed estimates of a 0.70% increase and lower than the first quarter’s annual GDP growth rate of 1.90%.
Japan’s nominal GDP advanced 0.20% in the quarter matching expectations but below 0.60% growth from the previous quarter. The GDP deflator which measures the price trends rose at a pace of 0.80% on a year over year basis during the April – June period. This was lower than the 0.90% increase seen in the previous quarter. The Q2 GDP deflator marked a third consecutive quarter of slowing, in line with weakening price trends including weak consumer inflation.
Japan’s economic and fiscal policy minister Nobuteru Ishihara said “Japan’s economy continues to post modest growth despite some soft spots. The government expects an economic recovery backed by private demand as employment and income conditions continue to improve, and the latest economic package stimulates investment in the future.”
In a separate report, industrial production data released by the Ministry of Economy, Trade, and Industry showed a pick up that was more than the initial estimates in June. Japan’s final industrial production grew 2.30% on a seasonally adjusted basis on a month over a month period. This was higher than the preliminary reports of a 1.90% increase. Shipments jumped 1.70% for the month, up from 1.20% gains reported initially. The capacity utilization rate fell 1.50% in June, compared to a 2.40% increase in May and marked the first month of decline in the past three months.
BoE’s Haldane: Monetary policy supports growth and protects jobs
Bank of England’s Chief Economist Andy Haldane, in an op-ed piece for the Sunday Times, said that the Bank of England’s monetary policy actions in August where the central bank cut interest rates by 25bps and expanded its QE asset purchase program was done to support growth and protect jobs. He said that without the BoE’s policy actions, hundreds of thousands of jobs would have been lost after the UK voted to leave the European Union.
“The purpose was to support growth and jobs. Why was it needed? Because the EU referendum result has thrown up a dust cloud of economic uncertainty, making it harder for companies to plan, with potentially adverse implications for future investment and jobs,” Haldane said in the column. According to the chief economist, the size and timing of the stimulus were meant to give a boost to both consumers and corporate sectors in the economy. He said that by lowering the cost of credit, the BoE’s policies were aimed at cushioning the impact of the Brexit uncertainty.
However, Haldane said that monetary policy action alone would not help to insulate the economy. The Bank of England came under scrutiny after the central bank lowered interest rates to new historic lows. During the August policy meeting, BoE Governor Mark Carney said that he did not prefer negative interest rates, signaling that the BoE is reaching the lower bounds of its monetary policy. He, however, said that the central bank’s asset purchases had room for more increased if the need arises.
Last week, the central bank’s bond-buying program hit a roadblock after some pension funds and investors were unwilling to sell the 10-year bonds. With the BoE actively seen purchasing government bonds, yields of the 10-year gilts continued to trade near record lows.
NY Fed Empire State Manufacturing Index contracts in August
The New York Fed’s index of manufacturing conditions showed an unexpected contraction in the sector for August. The Empire State Manufacturing Index contracted to -4.2 on declining new orders and shipments, according to official data. The -4.2 index reading missed analyst forecasts of an improvement to 2.5. In July, the empire state manufacturing index slowed to 0.6. A reading below the 0-index signals contraction in the sector.
New orders were unchanged near zero while the prices paid index fell to 15.5 indicating that input prices were moderate, and prices received index was at 2.1 indicating a minor increase in selling prices.
The US dollar was little changed on the release although the markets are widely expecting to see the Fed hold rates steady in September. Janet Yellen’s speech is due later in August at the Jackson Hole symposium where she is expected to shed more light on the Fed’s view of the economy.
