Japan’s Q1 growth figures look very good, but remember that some of the consumption demand for Q2 has been cannibalised by the knowledge of the impending 3 percent VAT increase from April 1.
The Bank of Japan's governor, Haruhiko Kuroda, was out overnight speaking and generally talking up the potential for current BoJ policy to continue to encourage the hoped for rise in inflation, including in wages, as the output gap should narrow. He also suggested that the BoJ has the requisite tools if more policy measures become necessary.
Australia: the Reserve Bank of Australia's Luci Ellis was also out speaking and said that he didn’t see a return of the 2003-style housing bubble and that housing credit is not growing that strongly overall. The harshness of the new proposed budget is seen as credit-positive by Moody’s and in the view of many, growth negative. Australian 2-year rates have settled to the lower end of the range of the last few months.
Looking ahead
The Eurozone April CPI data out this morning is the revision of the original figure released earlier this month, though the market is so touchy on the ECB’s view on inflation that a revision either way could see plenty of intraday volatility. Also look out for the Eurozone Q1 GDP estimate after the French and German data released earlier were mostly in line with expectations.
Today, let’s see if the JPY crosses continue to show more directional promise. Yesterday saw breaks lower in the major European crosses versus the JPY, but the most important JPY pair, USDJPY, remains bogged down in a range since, believe it or not, January. The bond market is supportive of the JPY, and we would probably need a sharp sell-off in the US equities (particularly interesting as we just broke to new all-time highs recently after a long bout of range trading) to get a downside break below the local lows at 101.43 and the 200-day moving average in the 101.20 area.
In EURUSD, it’s about whether the 1.3700/1.3675 zone gives way or whether we face a test of resistance first. It’s always a bit eerie when there is a large move followed by a very quiet consolidation in a tight range.
Chart: EURUSD
EURUSD has come a long way fast, but no one appears willing to step into buy, nor are the shorts reining in their positions, meaning we’ve seen hardly any bounce on the way down. The next two technical support of interest are the range support around 1.3675 and then the 200-day moving average around 1.3625. Below these and we’re open for a 1.3500 test. Save for one day last September, the pair has been trading above the 200-day moving average since last July.
We’ve got a batch of US data out today, and the CPI will receive the most focus, though the US CPI is in a less interesting place than the PCE inflation data series (next reading there is up on May 30th), as the core year-on-year CPI readings of late are in the middle of the range of the last several years. The general feeling is that it will take strong outliers in the US data to shift the view on the Fed’s policy trajectory.
Look out for Fed Chair Yellen out speaking very late in the US.
Economic Data Highlights
- New Zealand Apr. BusinessNZ Manufacturing PMI out at 55.2 vs. 58.0 in Mar.
- Japan Q1 GDP out at +1.5% QoQ vs. +1.0% expected and +0.1% in Q4
- Japan Q1 GDP Deflator out at 0.0% vs. -0.1% expected and -0.4% in Q4
- Australia Apr. New Motor Vehicle Sales out at -1.9% YoY vs. -2.9% in Mar.
- Japan Apr. Consumer Confidence Index out at 37.0 vs. 36.7 expected and 37.5 in Mar.
- France Q1 GDP out at 0.0% QoQ and +0.8% YoY vs. +0.1%/+0.9% expected and vs. +0.8% YoY in Q4
- Germany Q1 GDP out at +0.8% QoQ and +2.5% YoY vs. +0.7%/+2.5% expected, respectively and vs. +1.3% YoY in Q4
- Switzerland Apr. Producer and Import Prices (0715)
- Euro Zone ECB Publishes Monthly Report (0800)
- Euro Zone ECB’s Mersch to Speak (0850)
- Euro Zone Apr. CPI (0900)
- Euro Zone Q1 GDP (0900)
- Canada Mar. Manufacturing Sales (1230)
- US Fed’s Dudley to Speak (1230)
- US May Empire Manufacturing Survey (1230)
- US Apr. CPI (1230)
- US Weekly Initial Jobless Claims (1230)
- Canada Apr. Existing Home Sales (1300)
- US Mar. Total Net TIC Flows (1300)
- US Apr. Industrial Production and Capacity Utilization (1315)
- US Weekly Bloomberg Consumer Comfort Survey (1345)
- US May Philadelphia Fed Survey (1400)
- US May NAHB Housing Market Index (1400)
- Canada Bank of Canada’s Schembri to Speak (1630)
- US Fed’s Yellen to Speak (2210)