Mixed economic data over the last 24 hours. Weaker factory orders in Germany was a surprise and it shows that falling exports are having an impact. Truth to tell the PMI and manufacturing data coming out of Europe in the last day hasn’t been good, the likes of Spain and Ireland remain bastions of hope, but unfortunately they aren’t particularly large economies, at least compared to the likes of Germany, France and Italy. On the other hand the RBI in India has cut rates to the lowest level since 2011, lower oil prices are a boon for India which is a big importer. Australia has kept rates on hold, while in Japan corporate surveys show little confidence in the Bank of Japan’s ability to hit their 2% inflation target anytime soon. Later on in the morning we’ll get PMI data in the UK along with aggregates for the Eurozone, I don’t hold out too much hope for the Eurozone for the reasons already mentioned. Perhaps the retail sales numbers for the Eurozone will paint a slightly more encouraging picture though. Later on in the day we’ll get a raft of ISM non-Manufacturing data.
The most noticeable thing this morning is the strength of the Japanese yen, I suspect this is partly to do with the inflation expectations survey I mentioned, but also the fact that the BoJ is fairly limited in terms of what they can do in the short term. Even though BoJ Governor Kuroda has indicated his willingness to further expand monetary policy, there is a G7 summit that Japan is hosting in April so it probably wouldn’t be politic to do anything extraordinary at the April meeting. You get the sense that extraordinary is what is needed now in Japan!
Markets have the feel of consolidation at the moment, it’s been a decent rally since the doldrums of mid-February and I wouldn’t be surprised to see a fairly directionless market for a few weeks. The basic trend of a weakening dollar in the short term is continuing, finding expression through USD/JPY today. I don’t see much stopping sterling weakness unless there is a turnaround in the Brexit debate. That could easily happen but I suspect it could do so closer to the referendum. For now we would expect to see sterling struggle to maintain current levels against its. It’s worth pointing out that Brexit is not just bad for the pound sterling, I suspect it would be a disaster for the euro as well.
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