Japanese Issues Swarm Through Asian Markets

Last Thursday saw a 7% dip for the Nikkei as fears over the Bank of Japan’s ability to take the volatility out of asset moves increased. This morning Europe is waking up to find the Nikkei has, as if by appointment, lost another 5% overnight as similar concerns over volatility and the challenges that the Abe government will face in implementing structural reforms into the Japanese economy – the final step or “3rd arrow” of the Abe plan.

Despite this European markets look to be opening in a fairly sleepy fashion ahead of a run of important data points.

Yesterday’s publicised shift away from austerity in Europe, and endorsed by yesterday’s OECD reports, designed to promote employment, although further work will need to be done given the poor employment numbers out of Germany this morning. Unemployment rose by 21,000 against a 5,000 estimate. However, the unemployment rate remained at 6.9%, only slightly above a 20yr low. If this proves to be the beginning of a trend and not the just a blip then we could easily see further euro losses and pressure on political and economic leaders to help out.

UK data was poor this morning as retail sales fell to a 16 month low. We were surprised to see that the general consensus for this number was to be a move back to positivity given the general onerous nature of the UK economy towards its participants.

Unemployment has remained high while the disparity between wages and prices is hurting those who still have a job as well. Energy and food prices have remained high throughout the spring and unless they fall or wages start to recover the High Street will remain a tough place through the summer.

Yesterday we saw the recent USD strength knocked by an 8.8% fall in mortgage applications; the third consecutive weekly falls. This follows a 31bps increase in the rate of a 30yr fixed mortgage. In fact, treasury yields are moving to their highest level in over a year across the board at the moment; something that will only increase if the Fed tapers purchases sooner rather than later.

The news has rescued GBPUSD and EURUSD in the short term but they still look vulnerable.

This week has been all about consumer confidence and we receive the European version this morning. Things are expected to improve from the dire levels they occupy at the moment but not by any meaningful amount. Spanish GDP is also expected to remain at -0.5% for Q1.

The key release today, however, is the latest revision to US GDP for Q1 that should remain at 2.5%.