Japan’s current account widens as trade balance turns positive
Japan printed a current account surplus of 2,795.3 billion yen in March and beat 2,061.3 billion yen expectation (1,440.1bn yen last read); the trade balance turned positive (671.4 billion yen vs. -143.1 billion a month ago). Japan saved 750 billion yen on cheaper oil compared to last year as the oil prices bottomed at $42 in March, while higher income from intellectual property and increased touristic activity pushed the services surplus to highest levels since 1985 according to Finance Ministry. Nikkei 225 stocks gained 0.71% led by industrials (1.46%) and materials (1.45%).
Apparently the USD/JPY has found the sweet spot at 118/122 range. Even if the small-medium size businesses suffer from a weaker yen, Japanese big caps and services take advantage of good price competitiveness on the international platform. Things have started to move forward in Japan, yet the monetary expansion alone is no longer sufficient to build a strong macroeconomic base. Walking into the next BoJ meeting (May 21/22), the uncertainties will rise on whether a fresh BoJ stimulus will follow or not. There is little chance for an additional monetary stimulus in May/June meetings because the market needs more evidence on second and third arrows of Abenomics. In the absence of fiscal and structural reforms, extra monetary injection is pointless. History witnessed: the first (and the last) step towards a fiscal consolidation in April 14 has been a complete flop and more cash injection will certainly not lead to a better result for the next try!
JPY trades mixed given the lack of visibility on BoJ’s policy outlook. USD/JPY hovers around the daily Ichimoku cloud’s top (119.88) with limited enthusiasm. The lack of appetite for weaker JPY and fragile recovery in US yields limit the upside attempts in USD/JPY. Vanilla calls trail above 120, put options dominate below 119.50.
Less hawkish tone from the BOE to parlay into additional gains for the FTSE 100.
By comparison to yesterday, where the FTSE shed all its post-election gains the upside move in the FTSE in early trade today is reflecting a more sunny disposition on the part of investors. The UK benchmark has gained 0.71% helped by some decent updates from the likes of Barratt Developments (LONDON:BDEV) (+3.48%), SAB Miller (+1.83%) and Tui Group (LONDON:TUIT) (1.76%).
Housing completions for homebuilder Barratt Developments are ahead of previous guidance with the improving mortgage market, lower interest rates and support offered by the government Help-to-Buy scheme all contributing to the positive update. The company will now likely deliver a significant improvement in its full year performance.
Good progress towards achieving its fiscal 2017 targets of a gross margin of around 20% or more should help satisfy its shareholders.
Sabmiller (LONDON:SAB) beat market expectations with operating earnings of $6.37billion in the year ended on March 31 and net producer revenue of $26.29 billion. Beer sales remained rather flat with the soft drinks business helping to make up the difference with volume up 8%. Growth in this area was predominantly across Africa, Latin America and Europe. China and the US continue to drag on the company outlook and trading conditions will continue to be challenging in light of the significant currency gyrations we can expect to witness over the coming months. The increase in the dividend by 8% to $1.13 per share should help offset any weakness in future capital gains for investors.
As we await the UK Quarterly Inflation Report, there are growing signs that we will see a more balanced and less hawkish tone from the BOE which should parlay into additional gains for the FTSE.