In Japan, the lowest unemployment rate since 1984 and the highest jobs to applicant ratio since 1974 led to a meager .4% y/o/y increase in base pay in April after a .1% drop in March, a .2% rise in February and a .6% jump in January. It seems to be part time work that is instead getting rewarded as there was a 2.7% increase in the hourly pay for part timers. There was also a 5.7% y/o/y spike in bonus’ pay which is great to see but is so volatile month to month that how can an employee rely on that.
Bottom line, it seems clear that Japanese employers still don’t want to commit to any noticeable increase in pay for full time work that raises their fixed costs and instead continues to play it safe with part time work and discretionary bonus’. Either way, one of the wonders of low inflation is that it doesn’t take much of an increase in pay in order to drive faster real wages. I’ll say again, just imagine for a second if the BoJ is successful in driving 2% inflation and base pay jumps to a 2% y/o/y gain, a level seen in just two months over the past 20 years. Real wages are still zero, exactly where they are today. The yen continues to trade great and is ripping higher to back below 1.10, a 6 week high. The Nikkei remains completely tethered to the yen and fell 1%. The Japanese stock market is still attractive but I just don’t know what will happen when the BoJ decides to stop buying ETF’s, whenever of course that might be.
The Reserve Bank of Australia held rates at 1.5% as expected but sounded more upbeat about an economic turnaround to the upside and thus was considered hawkish. This made stock holders unhappy because we know what they love. The ASX fell 1.5%. If there ever was a responsible central bank over the past 20 years it has been the RBA who never believed in the boom/bust rat hole of negative interest rates and maybe that is why in part they haven’t had a recession since 1991. The Aussie $ is little changed but follows a sharp two day rally.
The yuan continues to trade well as the sentiment continues to change since a few Friday’s ago when we first heard about ‘counter cyclical factors’ as a new metric in helping to determine the yuan’s level. We also saw another rise in overnight SHIBOR which is now just shy of the highest level since April 2015. Well, what does a stable yuan now mean, I just read a headline across BN that said “China said ready to buy more US Treasuries as yuan steadies.” Chinese Treasury holdings peaked at $1.32T in November 2013 and are at $1.09T as of the last read in March. The US 10 yr yield is falling to 2.13-.14% in response from 2.15% just prior to the news and down from 2.18% as of yesterday’s close. The 2s/10s spread is now at just 85 bps, the lowest since early October.
With the US dollar weakness continuing, gold is again knocking on the $1300 door. I continue to be very bullish on it and silver. Yesterday I mentioned ag as unloved. You can certainly put the precious metals in that category as well even as gold is up almost 12% year to date and silver is up by 11%. This move higher over the past week also comes ahead of Super Thursday with the ECB meeting, UK elections and the James Comey testimony which will be either great television or Fonzie jumping the shark.
With President DJT meeting with both House and Senate members this afternoon, we can only hope we start to get some realistic clarity on the timing of changes in taxes and healthcare. I saw this great headline from Bloomberg News this morning:
— Bloomberg (@business) June 6, 2017