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Bank of Japan Governor Kuroda talking again – global, Japan, economies showing signs of bottoming out

  
Analysis, Economy

Kuroda speech, sticking to his script and not adding anything new or surprising.

 

  • global economy showing signs of hitting bottom, Japan’s economy showing similar signs
  • impact of covid-19 on Japan’s economy to persist for prolonged period
  • Japan’s economy to experience clear, positive growth in fiscal 2021
  • risks to Japan’s economy, prices skew to downside
  • BOJ will take additional easing steps without hesitation if needed
  • says YCC exerting intended effect on economy
  • BOJ must stem any sharp rise in interest rates, have made tools available to do so in March review
  • BOJ must keep entire yield curve stably low while impact of pandemic continues

 

  • says steps taken at March review allow boj to promote powerful monetary easing even further
  • while it is taking time, it’s possible to achieve BOJ’s 2% inflation target by maintaining easy policy

 

 

This one ….

 it’s possible to achieve BOJ’s 2% inflation target 
It is also possible I will have a dinner date with Gigi Hadid, and it may take time. But don’t go basing any trades on that, K?

Chinese data released over the weekend, Jan- Feb industrial profits up 179% y/y

  
Analysis, Economy

Profits in the first two months of 2021 were up 179% from the same period last year

  • At the time last year (January-February) China was entering and then in strict COVID-19 lockdown ahead of the rest of the globe
It may be more instructive to compare with Jan-Feb of 2019
  • profits were up 72.1% from the 2019 levels
—
ps China Stats have combined data for January and February to exclude distortions caused by the week-long Lunar New Year, which fell in February in 2021

UK March preliminary services PMI 56.8 vs 51.0 expected

  
Analysis, Economy

Latest data released by Markit/CIPS – 24 march 2021

  • Prior 49.5
  • Manufacturing PMI 57.9 vs 55.0 expected
  • Prior 55.1
  • Composite PMI 56.6 vs 51.4 expected
  • Prior 49.6
That is a solid beat and adds to the optimism surrounding the rebound in the UK economy once restrictions are eased later on in the year.

Business activity in the UK returned to expansion and improved at its quickest pace in seven months, with the services reading also coming in at the highest since August last year. Meanwhile, the manufacturing reading is the highest in 40 months.

Service providers noted forward bookings from domestic consumers as the higher level of activity is linked to the prospect of looser restrictions later in the year.
Manufacturers also noted advanced orders helping to boost demand conditions as export sales remain relatively subdued. Markit notes that:

“The UK economy rebounded from two months of decline in March, with business activity growing at its fastest rate since last August as children returned to schools, businesses prepared for the reopening of the economy and the vaccine roll-out boosted confidence. Companies reported an influx of new orders on a scale exceeded only once in almost four years, and business expectations for growth in the year ahead surged to the highest since comparable data were first available in 2012. Employment consequently rose for the first time since the pandemic struck as firms expanded capacity in response to the new inflows of work and brighter outlook.

“The surge in business activity is far stronger than any economists expected, according to Reuters polls, and hints at only a modest contraction of GDP during the first quarter, adding to evidence that the economy has shown far greater resilience in the third lockdown compared to the first. The encouraging readings on future expectations, job creation and new order inflows meanwhile all point to robust economic growth in the second quarter, especially if virus restrictions are lifted further.

“Worries persist though, especially in relation to near-record supply chain delays, a continued fall in exports and sharply rising prices, all of which are making life difficult for many companies. Many consumer facing companies meanwhile remain constrained by COVID-19 restrictions, which are likely to curb the overall pace of economic growth for some time to come, especially if we see a third wave of infections.”

Eurozone March preliminary services PMI 48.8 vs 46.0 expected

  
Analysis, Economy

Latest data released by Markit – 24 March 2021

  • Prior 45.7
  • Manufacturing PMI 62.4 vs 57.6 expected
  • Prior 57.9
  • Composite PMI 52.5 vs 49.1 expected
  • Prior 48.8

The French and German readings set out what to expect here and it is largely positive, with the services reading coming in at a 7-month high while the manufacturing reading is a record high for the overall Eurozone.

A record increase in the manufacturing output index contributed largely to the jump in factory activity, hinting that demand conditions are continuing to pick up.
Meanwhile, the services sector showed some signs of stabilisation at least but the outlook there still largely depends on how virus restrictions play out in the months ahead.
Markit notes that:

“The eurozone economy beat expectations in March, showing a much better than anticipated expansion thanks mainly to a record surge in manufacturing output.

“The service sector remains the economy’s weak spot, but even here the rate of decline moderated in March as companies benefited from the manufacturing sector’s upturn, customers adapted to life during a pandemic and prospects remained relatively upbeat.

“The outlook has deteriorated, however, amid rising COVID-19 infection rates and new lockdown measures. This two-speed nature of the economy will therefore likely persist for some time to come, as manufacturers benefit from a recovery in global demand but consumer-facing service companies remain constrained by social distancing restrictions.

“The surge in demand for manufactured goods is meanwhile stretching supply chains to an unprecedented extent, in turn pushing costs up at the fastest rate for a decade. These cost pressures will likely feed through to higher consumer price inflation in coming months.”

Bank of Spain cuts economic outlook

  
Analysis, Economy

More signs of slowing in the eurozone economy

  • Sees economy shrinking by 0.4% q/q in Q1
  • Revises 2021 GDP to 6% from 6.8% forecast in December
  • Sees 2022 GDP rising 5.3%
  • Sees inflation this year at 1.4% from 0.6% in December
  • Sees inflation 0.8% in 2022 and 1.2% in 2023
  • Sees unemployment this year at 17% vs 18.3% in December
Global markets are souring on slower economic growth in Europe. Oil is particularly soft today, down $2.32 to $59.17.

Bundesbank says German economy likely to contract sharply in Q1 2021

  
Analysis, Economy

Bundesbank comments in its monthly report

Germany
  • The measures to contain the virus are on average stricter in Q1 than Q4 last year
  • Economic output will probably decline sharply in Q1
  • Activity in services in particular is likely to decline again
  • Higher VAT rates since the start of the year also likely to have played a role
  • Industry sector benefited from dynamic foreign demand, should have supported economic activity in Q1
Nothing that we don’t already know but keep an eye out on the daily virus numbers out of Germany for a sense of how things may progress next and at what pace. In particular, be mindful of the 7-day incidence rate – which has climbed to 107.3 today.

Barclays expects a delay to Eurozone economic recovery

  
Analysis, Economy

Barclays revises lower its 2022 Eurozone GDP growth forecast

Amid recent developments, the firm is less confident about the strength of the recovery in the euro area as they revise lower their 2022 growth projections for the region from 5.3% previously to 4.3% currently.
The 2021 GDP growth forecast remains unchanged at 3.9%. Barclays notes that:

“We expect a delayed and more modest economic recovery, due to recent negative epidemiological developments and their potential scarring effect. Our revised annual read GDP growth forecasts are 3.9% in 2021 (unchanged) and 4.3% in 2022 (-1.0%).

Our forecasts imply a growing divergence between the euro area and the US, and among euro area member states, with 2022 real per-capita GDP still 7% below pre-global financial crisis levels in Italy, but 20% and 16% above in the US and Germany.

Euro area governments are currently tightening mobility restrictions and, in our view, are likely to scale them back only late in Q2 and gradually, which will weaken domestic demand and, consequently, imports.”

Bank of Japan Governor Kuroda says his 2% inflation target is helping stabilise FX rates

  
Analysis, Economy

BOJ Gov Kuroda says there is no need to change the 2% inflation target, its a global standard and must not change.

And, more:
  • More flexible ETF buyings to improve nimbleness
—
Given the performance of Japanese stocks today he might want to get on the bid!
More:
  • have not considered selling ETF holdings at all, or of halting purchases
  • decided to buy ETFs that are linked to the TOPIX to avoid impact on individual stocks
  • need to watch financial stability carefully
  • monetary easing will last for a considerably long time ahead
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