Good GDP data came out of the US, but it seems as if it didn’t really bite fully until 3-4 hours later when a massive impulse sent markets globally at least 1% higher. The Nikkei futures saw a 1.27% rally in 75 minutes! Whoa! The yen also seems to be the major currency market shakeout since the yen crossed weaker than 109 to the dollar, providing some additional value to the Nikkei. Still, when quantitative easing starts to not be as important, good news can be good news for once, and it feels like it’s been forever that said rationality mirrored reality.
Before I start sounding like a street peddler trying to push the Nikkei on you, it might be time that I enlist the help of Bloomberg which last morning covered the analyst estimates of how much the Japan Government Pension Investment Fund will increase their equity weights to. As discussed in the article, it would have a great effect on the market, but it currently looks like the Nikkei is a bit too close to the range top of 16 400 points (500 – 600 points away) for the fund to go in at these levels unless better fundamental data is on the way. What’s the case for that?
Well, there has already been a lot of good data coming out of Japan, and tomorrow looks like it could be even more interesting. Keep an eye out for CPI, employment numbers, and household spending at 8.30 am local time (4 hours from the time of writing) and construction spending plus housing starts at five and a half hours later, 2 pm local time. (GMT+9)
What is the data and what will the data probably result in?
- CPI: 3% inflation forecast by analysts. This might be lower due to foreign imports of oil-based products not being as expensive as many analysts had forecast (2.8% feels like a decent random number to guess) which would give Kuroda more opportunity to add stimulus, unless he estimates that the data out of the US tonight will be vastly yen-negative and do his work for him. Said stimulus was sort-of expected at the last BOJ meeting, and since then data has generally been good and dissent has been starting to show over the yen values.
- One reason to not overestimate the impact of imported fuels into Japan is that their trade, although large in absolute numbers, isn’t that woefully large in total GDP relationships. The economy isn’t super-sensitive to foreign input prices as a result.
- The Nikkei could well rally on lower inflation data anyhow on expectations of increased stimulating measures.
- Employment numbers: unemployment at 3.6% forecast. Probably not that big of a deal, and I can’t really make heads or tails of the data either way in the Japanese economy.
- Consumer spending: wage.earner’s household spending expected to decrease by 4.3%. This is obviously a good indicator and if it outperforms expectations more than inflation fails to meet expectations, I do expect it to be a net-market positive as it shows people are spending more than market participants expect, even if it is on an abysmally low level. Good underlying values could point to a recovery that is strong enough to support a tax hike in eleven months. This is probably the indicator that will have the most impact on the market directly, even though it’s not as snappy to quote as inflation numbers.
- Several components like industrial production and so forth that have came out this week have been good, and the data trend seems to be overall positive relative analyst estimations. “Feeling the number in” without any statistical backing would probably make me estimate it around a 3.8-4.0% range decrease.
- Construction spending has no forecast value on my data provider, but relative to past values it could tell a lot about the pace of the economy, but I haven’t dug into this well enough to make any predictions.
- Housing starts though are expected to fall by a whopping 17.5%. Sure the data is volatile and the last few months have seen Japan pelted with typhoons, probably slowing down housing starts for cleaning and after-work locally, but still, a 17.5% fall seems… big…
Anyhow, the data tomorrow could possibly add a lot of momentum, and thanks to the consolidation from yesterday’s Fed decisions I think that the selling pressure has been a bit satiated.
Update: On the first numbers, the data for consumer spending was the only one significantly changing from expectations, ticking in at -5.6%. Ouch… Overall consumer spending up 1.5% on expectations of 1.9% isn’t too good either.