Japan
A day after the WSJ reported that “Quietly, BoJ is purchasing fewer bonds,” something we’ve noticed for a while, BoJ Governor Kuroda is still not ready to lay out an official exit strategy notwithstanding the peer pressure that is growing since more central banks are doing it. He said today “Achieving and maintaining stable prices and avoiding a return to deflation are far more important than the problems of the prolonged period of easing.” The attempt at 2% inflation has failed miserably but self introspection doesn’t exist at the BoJ, let alone elsewhere. Either way, the BoJ has been in a behind the scenes taper as they are on track to buy about 60T yen of securities this year instead of 80T as ‘yield curve control’ is more of a focus. At some point Kuroda is going to have to explicitly wave the white towel because he is breaking their markets by owning 40% of the JGB market and now dominating the stock market, all for naught relative to their stated goals. Ironically, true price stability is what they’ve achieved. The yen is weaker after the non event meeting and the Nikkei rallied .50% overnight. JGB yields 10 yrs out were unchanged but rose in the 30 and 40 yr maturities by 2 bps.
After liking Japanese stocks for years, I’m really 50/50 here because I’m worried about what an announced exit strategy will mean eventually for the yen and stocks. I mean just trimming or slowing the ETF purchases could really matter. On the flip side, it seems that Japanese companies have gotten religion on maximizing shareholder returns with a rising ROE and better corporate governance.
Europe
A week after Mario Draghi in his press conference talked about the Eurozone generating “low quality jobs” as reason for modest wage growth, wages rose 1.4% y/o/y in Q1 vs 1.5% in Q4 in the Eurozone. There is no estimate so I can only compare this to CPI which averaged 1.8% in Q1. Thus the average European saw a drop in REAL wages as did the Brits. Headline CPI did moderate to 1.4% in May in today’s final revision but this again points to the nonsense of a central bank wanting 2% inflation irrespective of where wage growth is. So to repeat again, even if we get 2% inflation but wages rise by the same amount, we are no better off. Someone else explain this to them because they don’t listen to me. On a core level, prices have been stable in the Eurozone, averaging .9% y/o/y over the past two years which is what the May figure printed. The euro is up after yesterday’s pullback as European sovereign yields are higher again after yesterday’s jump. I still like the euro and some European stock markets while despising its bond markets.
United States
We’ll see May housing starts and permits and June confidence data today in the US.
In case you missed it, my latest podcast here. And a reminder of the latest update to the Investment Ideas page here.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.