The Eurozone economy has been suffering for long time but continues to recover. This past week we received data that the manufacturing PMI was up to 53.3 in April. This means that this sector is expanding nicely, even though it is below the high of 54 we saw in January. Since the middle of 2012 we have been improving.
In other European data, the service sector printed at 53.1. This is among its high prints since 2011. What does this mean? Business confidence is at its highest strongest level in years. We still need this to become real GDP growth along with an inflation rate nearer to two percent. The GDP for Q4 was at 0.9 percent and CPI inflation was at 0.5 percent annually.
Consumer Prices Come in Higher in Japan
Over the last year the Bank of Japan (BOJ) has been stimulating the economy by injecting currency (the yen) in open market operations. This has been an effort to defeat 15 years of deflation in Japan’s economy. Last week the annual CPY grew at 1.6 percent in March. This is just before the new consumption tax takes effect this month. This will help to put upward pressure on prices.
In Tokyo prices rose by and astonishing 2.9 percent. This is its highest level since 1991 and prevents the BOJ with a conundrum. The central bank wants to see prices rise, and at the same time convince the public this is good. With the consumption tax about to rise, we could see the second quarter GDP contract a bit. It is not clear whether or not BOJ will step in to help offset this possibility. They could increase their QE program, but have made no moves to even suggest they are willing to do this at this time. We will have to wait and see.
Retail Sales in the UK Come in Strong
We thought we would get a small decline in retail sales this past week, however they came in stronger than expected thanks to a warm March. Not including car sales, we saw this index fall by 0.4 percent. That is off the spike of 1.3 percent the month prior. On a per annum basis, retail sales, not including auto sales, was up 4.2 percent. This is the second highest increase (annually) in over five years.
In other data coming out of the United Kingdom, we saw that consumer spending is supporting GDP nicely throughout 2013 and is set to continue through this year. We saw GDP grow at 2.7 percent in Q4 2013 and three percent in Q1 2014. Consumer spending is the key driver here.
Binary Options Take for Today
We are still seeing very low volatility in the G-10 currencies. It is still a good time to look at the former “Fragile Five” for some gains. The Indonesian rupiah is still the leading performer there.
Discussion
Do you think the BOJ will increase its QE program to offset the new consumption tax? We could see the second quarter GDP contract which will only hurt their efforts. Sound off in comments below.