Originally published by Rivkin Securities
Friday was filled with key data releases for developed economies including Euro-zone and Japanese inflation along with US, UK and French GDP. In Japan year-on-year for March headline inflation rose +0.2%, less than forecasts of +0.3% while the Bank of Japanese target inflation which excludes fresh food remained unchanged at +0.2% in line with expectations. The unemployment rate remained unchanged at +2.8% surpassing forecasts for a slight increase to +2.9% while house hold spending slipped -1.3% against estimates of a -0.5% decline. The yen strengthened +0.25% against the US dollar weighing on equities with both the Nikkei 225 and TOPIX indices declining –0.29% and -0.32% respectively.
Pressure continues to build on ECB President Mario Draghi as inflation rose more than forecast. Year-on-year for April prices increased +1.9% from +1.5% previously topping estimates for +1.8% growth. The core measure which includes volatile items such as food and energy rose +1.2% against expectations of +1.0% and a prior reading of +0.8%. While the increase in core inflation is encouraging, it remains too soon to tell if this will be a sustained pickup. As pressure builds on the ECB, the experience of a premature tightening in rates in 2011 to tackle a pickup in inflation will likely remain in focus for ECB officials. While the Euro-zone recovery continues to broaden, it remains underpinned by the ECB’s extraordinary stimulus and calls for an early withdrawal of this stimulus remain premature until we see sustained evidence of core inflation.
French GDP unexpectedly slowed rising +0.8% year-on-year for the first quarter from +1.2% previously and the +0.9% anticipated by analysts. While a slight disappointment, recent PMI reports continue to signal that the recovery in the Euro-zone’s second largest economy continues to broaden. The Euro rose +0.21% following the inflation figures as German bond yields edged higher with both the two & ten-year yield up +1 & +2.5 basis points respectively. European equity markets swung between gains and losses before closing generally lower with the Euro STOXX 600 down -0.18%.
In the UK GDP also missed estimates, rising +2.1% year-on-year for the first quarter against expectations for +2.2%. Still that is up from the prior reading of +1.9% and the pound strengthened +0.34% against the US dollar as the UK 10-Year yield rose +2.3 basis points.
In the US GDP grew at +0.7% on an annualised basis for the first quarter, less than the +1.0% forecast and prior reading of +2.1%. This is generally seen as more of a blip than a concern with economists citing seasonal factors and volatility in inventories. The first quarter tends to be softer than the remaining three and a robust consumer is expected to continue to underpin the economy. The US Dollar Index finished flat, down just -0.03%, the US 2-year yield rose +1.2 basis points while the 10-year yield declined -1.4 basis points. Equities were mixed as the S&P 500 declined -0.19% while the Nasdaq 100 gained +0.22%.
Locally the S&P/ASX 200 finished flat on Friday, up just +0.04% and this morning we can expect a slightly softer start to trading with ASX SPI200 futures down -8 points at the close of trade on Friday.
Data releases:
· Japan Nikkei manufacturing PMI (MoM Apr) 10:30am AEDT
· Australian TD Securities Inflation (MoM & YoY Apr) 11:00am AEDT
· US Personal Consumption Expenditure (MoM & YoY Mar) 10:30pm AEDT
· US ISM Manufacturing Survey (MoM Apr) 12:00am AEDT