Stanley Fischer speaks at 12:30pm and Yellen follows at 1pm. Remember a year ago the Fed used the excuse of ‘the tightening of financial conditions’ as reason not to hike. With stocks at record highs and credit spreads near record lows its now quite the opposite.
Thanks to rising energy costs, January headline CPI in Japan rose .4% y/o/y as expected vs .3% in December and the core/core rate (ex both food and energy) was up by .2%, twice the pace as in the month prior and also as forecasted. The more up to date February CPI for Tokyo saw no change in prices y/o/y ex food and energy and a drop of .3% at the headline level. For all the obsessions over many years about wanting higher inflation in Japan and the global central bank panic over deflation that causes them to go to great lengths to print money and pin rates, Japan is the only country that has actually seen price stability over the past 25 years. CPI since 1992 has averaged .2%. Americans instead have seen the purchasing power of their dollars fall by 2.3% on average each year for the past 25. The desire for higher inflation when wage growth is modest and bond yields are still microscopic makes no sense to me. But, on the other hand the only way to deal with the amount of debt they have is to inflate it away. Fun times. As for the BoJ, DJ is reporting that the BoJ is “more confident that inflation will top 1% in next fiscal year.”
Japanese consumer confidence for February was 43.1, essentially unchanged for the 2nd month with the key Income Growth component lower. Since Abenomics began in late 2012, this confidence index is up a whopping 3 pts. It touched 50 in 2006. A lot of trees were cut down to print all that yen in order to get that kind of lame progress. Also, in an aging population that is literally shrinking, senior citizens have no fixed income to speak of to live on but that is certainly nothing new.
On the labor front, the Japanese jobs market remains tight. The jobs to applicant ratio held at 1.43, the highest since 1991 and the unemployment rate is at just 3%, down one tenth and matching the lowest level since 1995. The only thing missing here is a quicker pace of wage gains that still remains elusive. At least for Japanese exporters to the US, they are now put on hold over this border adjustment tax proposal. We can say the same for any foreign company that exports to the US, they are worried. Contra to the action in every other market, JGB yields fell overnight but the yen is lower and the Nikkei fell .5% as all Asian markets were red overnight. I mentioned the particular weakness yesterday in the Hang Seng and it fell another .7% led by a drop in property stocks with the rise in rates. It’s now down 6 in the last 7 days. Trump needs to go there and give a speech.
Also out in Asia were more PMI’s where the private sector weighted Chinese services index fell m/o/m by .5 pt to 52.6. That quietly is at a 4 month low. The improvement in the Chinese data of late has been on the manufacturing side. The services PMI out of Japan also dipped and PMI’s in Singapore and Hong Kong also fell m/o/m. As we get to the end of the disastrous forced currency exchange in India, their services PMI rose back above 50 to 50.3 from 48.7.
The final look at Eurozone services PMI was 55.5, .1 pt below the 1st print but up from 53.7 in January and it’s at the best level since May 2011. Service gains were seen for the biggest 4 countries. Markit equates the growth seen in its manufacturing and services composite index to a GDP increase of .6% q/o/q in Q1. Job growth also continues to improve. Inflation pressures also is a part of this equation as “input prices rose at the quickest pace since June 2011 in February, reflecting higher staff costs and increased purchases prices (the latter due in part to rising commodity costs and the weak euro).” The euro is up and continues to stubbornly hold that $1.05 level.
Retail sales in the euro area in January disappointed with a .1% m/o/m decline vs the estimate of up .3% and December was revised down by two tenths. It’s 4 of the last 5 months of m/o/m sales declines although are still up y/o/y. German retail sales in particular were softer than expected. Is this all the result of higher inflation? Higher energy costs? Most likely it was a factor because I don’t see many signs of wage acceleration in Europe (outside of Germany) and the ECB wants this higher inflation.
The French stock market is getting a lift of about .5% after a poll showed that Emmanuel Macron, the business friendly candidate, is now ahead of Marie Le Pen by 1.5 pts in the first round. A Macron Presidency would be a big positive I believe for France. The Fillon campaign is dying on the vine unfortunately because of his nepotism hiring issues. He was my favorite because of his Reagan, Thatcher economic beliefs.