So yesterday saw the release of a lot of Japanese data to close out the month, and I think I will summarize the month a little bit later, given that it started in a very particular manner. Before we get to my impressions though, a quick summary:
The data was overall better than or meeting expectations, but didn’t highlight any massive surprises or structural shifts overall. The unemployment rate was below expectations/previous values at 3.5% with a marginal increase in the Jobs-to-Applicants Ratio from 1.09 to 1.1 to back it up. Household spending only fell by 4% YoY (vs expectations of 5.1%) with a 0.9% uptick MoM. (The expectations were for no growth in spending MoM). CPI was as expected or marginally below, and retail sales beat expectations by increasing 1.4% YoY (vs. 1.2% expected, but still below 2.3% prior growth, and a 1.4% decline MoM). Preliminary industrial output managed 0.2% monthly growth versus expectations of a 0.6% decline, and a YoY figure showing a decrease of 1.0%. The major problem is that companies are forecasting marginal monthly declines going forwards…
Construction spending and housing starts however were great data, with spending increasing by 15.7% (against a prior decline by over 40%, but still an increase) and housing starts falling significantly less than estimates or prior values, reflecting 12.3% lower housing starts on expectations of a 15% decrease. So, what will this all likely mean for the Japanese economy?
Tuesday and Wednesday was the US data, yesterday it was EU/Germany data, and this morning we’re getting Japanese 3rd quarter data. This together with some interesting Bloomberg interviews on the prospects for Japan’s equity markets and another article on just how much Japan is influencing equity pricing around Asia due to the hunt for yield. But first, the laundry list of Japanese data coming out. (All times in Japan Standard Time, or GMT+9.)
- 08:30 – Unemployment Rate (Exp/Prior: 3.6%)
- 08:30 – Household Spending, YoY (Exp: – 5.1%, Prior: -5.6%), MoM (Exp: 0.0%, Prior: 1.5%)
- 08:30 – CPI YoY: National, Nat. Core (Exp: 2.9%, Prior: 3.0%), Tokyo, T. Core (Exp/Prior: 2.5%).
- 08:30 – Jobs-to-Applicant Ratio (Exp/Prior: 1.09)
- 08:50 – Industrial Production, Companies’ Output Forecasts, 1M / 2M (Prior: 6% / 3.5%)
- 08:50 – Industrial Production, Industrial Output MoM (Exp: -0.6%, Prior: 2.7%)
- 08:50 – Retail Sales YoY (Exp: 1.2%, Prior: 2.3%)
- 08:50 – Capital Flows, Foreign Bond/Stock Investment into Japan (Prior: JPY 212.5B / JPY 909.8B)
- 14:00 – Construction Spending – Orders (Prior: -40.3%)
- 14:00 – Housing Starts YoY (Exp: -15.0%, Prior: -14.3%)
There are some data coming out of Australia, Germany and the UK relatively early tomorrow, and the US markets will be back trading in force since there was no OPEC cut, so things might look a little hectic in yen crosses and the different stock indices on the Tokyo Stock Exchange.
What lends this particular data release a lot of weight is that it’s the last real big batch of important numbers we get before the December 14th election except for a bit of Machinery Orders on December 10th, so this might be our last, hard weather vane on economic data which will shape the debate, and mostly how Abe will have to wiggle through the political landscape to get a bigger mandate for economic reform.
Over to some more analysis of what we are actually looking at then!
It’s all been relatively quiet on the eastern front of the world markets, and it seems like there is as of yet very little political campaigning going on before the December 14th election. What little information there is has to be gleamed from elsewhere, and Bloomberg seems comically split on the issue. Their main Japan / East Asia columnist is essentially condemning the islands to submersion in their own sea of debt, while their paid advertisement articles are extremely bullish on the country, and the news reporting at least falls somewhere in between.
The reporting is partially on the Japanese high court deciding that the last two elections (lower house of the Diet in 2012 and upper house in 2013) were held in unconstitutional conditions. The problem was that rural area votes in some cases had a higher weight by nearly five times those of urban areas, and that this was not consistent with the equal representation demands. Since rural areas are largely driven by farmers and elderly, this thus means that the farm lobbies’ and pensioners’ concerns carry disproportionate weight in the Japanese elections. I think rural communities need a revival in Japan, but that should be from creation of economic opportunity, rather than entrenchment of defunct systems of finance and influence transfer structures.
Separately, Bloomberg is also reporting on the prospect of Abe putting a second woman on the Bank of Japan board, which would for all intents and purposes be as great a positive as you could get. This is partially, as the article states, because more female-friendly work reforms is the top political issue for the most voters (21%!) and Abe showing leadership after some very problematic minister resignations earlier this year would be most welcome. Having positive alignments towards the current political ideas and Bank of Japan “Qualitative and Quantitative Easing” program will also be a great benefit on the candidates, so finding a woman that supports Kuroda would essentially killing two birds with one stone!
Read the articles, then read on for some of my more detailed takes on these developments!
China has been pretty busy so far this week to follow up the PBOC decision to use a skewed interest rate cut, and the wake of this development is being filled with other progress that will favour equity markets in the financing mix going forwards.
Bloomberg is reporting on two developments: the continued scrapping of red tape for IPOs, particularly overseas, and the People’s Bank of China is going out and running a pretty intense PR campaign to convince savers that they are indeed much better off as savers in this new policy realm.
Both of these developments are important for China’s continued development of its capital markets. Making the IPO process easier just doesn’t speed up the current pipeline – it makes the prospect of starting a firm and potentially taking it through all the funding rounds a much more realistic prospect, increasing valuations at all steps of the chain, and probably prompting more people to take the leap and start their own ventures, or funding a new one.
Outlining how the real savings rate is close to 1.7% in China at the moment, it shows how much better savers are actually off in these environments, and that China’s decades of financial repression are slowly unwinding.
Awesome! Bloomberg reports that we’re getting futures contracts on the JPX Nikkei Index 400 as early as Tuesday next week!
This will very likely go a long way towards making it a more traded index, with greater pricing power and greater ability to capture overnight sentiments. The Japan Exchange Group is already trying to make the index more accessible to a wider selection of investors and traders as they are listing e-minis, or index contracts valued at index times 100 yen, rather than the normal 10 000 yen multiplier. At a value of 12 725 on the JPX Nikkei 400, it would thus mean about 1 272 500 yen for one notional lot. What does the analysis of the market, growth prospects and positioning information look like? Hit the jump for more!
Bloomberg has been out in force on reporting on Chinese debt levels and developments today, and this is really interesting so I think I’ll try to give my take on the whole thing, piece by piece after this summary.
Altogether this is very promising, and warrants a bit of a closer look for each of the main points, but also into the tangential specifics of the individual Bloomberg articles.
While the Hong Kong markets are still open and busy confirming my technical analysis from yesterday, something else very interesting (that I sadly cannot chart easily) has happened: futures spreads seem to have collapsed in the Hong Kong, China and Japan markets, by nearly half from yesterday on the platforms I watch. I will deal with the implications for Japan here, and get back to China and Hong Kong on my now-daily view of the Shanghai – Hong Kong Stock Connect trading when I have all the data.
In Japan, there are two interesting spreads to look at: that between the Nikkei 225 and its futures chain, and that between the Nikkei 225 and TOPIX. Let’s start with the futures, after the jump!