Tokyo Dross
On Wednesday morning we said “I am unsure about what happens from the Bank of Japan in the early hours of Friday morning but I have a funny feeling, given administration comms so far, there will be a surprise.” How right we were.
The yen has surged through the Asian session following the Bank of Japan’s decision to expand its target for purchases of Exchange Traded Funds to 6 trillion yen ($58.3 billion) and double its U.S. dollar lending program to $24 billion all the while keeping its target for government bond purchases and its interest rates unchanged.
This is a huge disappointment akin to the market being promised a brand new bike on Christmas morning and finding a helmet and a pair of stabilisers under the tree. The reaction has been swift and USDJPY is sharply lower this morning with yen around a per cent stronger on the session so far.
It now seems that it will indeed be the Abe government that bears the main weight of stimulus expectations but we will have to wait until next week to assess just how well today’s announcement from the Japanese central bank dovetails with plans from the government. It seems the helicopter money experiment will never get off the ground in Japan.
Europe showing few Brexit pressures yet
With most of Europe now on holiday until the end of August, news from the continent has slowed somewhat. So far however, European data seems to be unwilling to show any negative effects of Brexit as yet contributing to another week of euro outperformance.
Economic confidence rose this month unexpectedly although some expectations indicators within these surveys did deteriorate, showing a possible checking of momentum in the future.
Similarly, German unemployment declined in July although a pick-up in German employment and a subsequent local increase in inflation is hardly what the wider Eurozone needs – a pick-up in Spanish, Portuguese or Greek employment would be received a lot more readily.
Next week’s PMI releases will be interesting to see just how the more present data from the Eurozone is representing any Brexit risk.
UK consumer confidence falls but business confidence bounces back
Here in the UK, yet another consumer confidence measure has hit multi-year lows. Not since 1990’s demonstrations and riots against Margaret Thatcher’s poll tax has GfK’s monthly measure of UK consumer confidence declined by as much as it did in July.
In a separate report also released this morning, Lloyds Bank said that its business barometer had rebounded this month following a deep Brexit fall. The bounce back in the level of economic optimism was not enough to undo the entire post-vote decline and so there is a reasonable belief that some economic uncertainty lingers.
The Day Ahead
Despite a pick-up in German inflation yesterday we are not expecting a worthwhile improvement in Eurozone inflation dynamics at 10am. UK mortgage approvals at 09.30 for the month of June will also make for interesting reading; did the mortgage market pause for the vote, or did people rush deals through?