Japanese data improves markedly as investors ponder if the BOJ’s monetary stimulus package is now working

Oct 29 • Mind The Gap • 1722 Views • Comments Off on Japanese data improves markedly as investors ponder if the BOJ’s monetary stimulus package is now working

japanese-shoppersJapan’s government authorities published several reports in the overnight/early morning session. All came in positive and ahead of economists’ expectations. Retail sales improved by 3.1% year on year, household spending increased by 3.7% and unemployment fell to 4%. All things considered it’s an excellent series of results adding belief that the unprecedented monetary stimulus Japan is undergoing is now beginning to bear fruit. The Bank of Japan buys more than 7 trillion yen of Japanese government bonds every month in its bid to combat deflation. The central bank will release updated forecasts on Japan’s growth and inflation after a policy meeting on Oct. 31st. In a correlated market move yen rose, due to expectation that the stimulus may be tempered, whilst Japanese equities sold off.

 

Spanish Retail Sales Y/Y 2.2% vs. Exp. 2.1% (Prev. -4.2%)

Spain’s retail sales appear to have bounced back, according to the latest data published the year on year rise is 2.2% versus the previous figure of a fall of 4.2%. That’s the first year on year rise in over three years.

 

Bad loans at European banks have now reached $1.7 trillion

According to the respected accountancy and business management firm PWC approx. 1.2 trillion euros ($1.7 trillion) of non-performing loans (NPLs) are parked on European banks’ balance sheets, highlighting the ongoing (hidden) crisis in the peripheral European nations. The rise in NPLs has been driven by countries in struggling Southern Europe, mainly Italy, Spain and Greece and Ireland.

 

Richard Thompson, the chairman of PwC’s European portfolio advisory group;

“With an uncertain economic climate it is difficult to forecast any meaningful reduction in aggregate across Europe and indeed we believe that reported NPLs in many countries will continue to rise over the next couple of years, adding further impetus to the already buoyant loan portfolio market,”

“We are seeing extremely high levels of competition in the market at the moment… As the banks try to position themselves to meet the Basel III capital requirements and react to the ECB’s stress tests following the Asset Quality Review, we expect more assets to come to market in 2014 and beyond.”

 

Net lending to UK individuals falls, whilst mortgage lending rises marginally

Net lending to individuals in the UK fell to 1.4 billion sterling from last month’s 1.7 billion, missing the expectation that lending would rise to 2.4 billion. This falling figure suggested that consumers confidence and therefore appetite to take on more debt, may be less than many analysts have anticipated. Mortgage approvals came in at 67K, up from the previous 65K. It’s still too early to ascertain if the infamous ‘Help To Buy’ scheme, where the UK government is to underwrite 15% mortgage deposits up to a mortgage level of £600K is being taken up in significant numbers. The next two quarters, traditionally the quietest for mortgage applications and approvals, should provide evidence of the overall popularity of the scheme.

 

Market snapshot at 10:00 am UK time

Asian indices experienced mixed fortunes in the overnight/early morning session; the Nikkei closing down 0.49%, Hang Seng up 0.18% and the CSI up 0.26%. The ASX 200 closed down 0.48%. European bourses are positive in the morning session, with the notable exception of the Athens exchange which is currently down 0.19%.

The STOXX index is currently up 0.39%, UK FTSE up 0.38%, CAC up 0.18%, DAX up 0.07% and the MIB up the most in early trade up 1.15%. Looking towards the USA open the DJIA equity index future is up 0.03%, SPX down 0.02% and the NASDAQ equity index future is down 0.08%, all three indices suggesting that investors are mindful of the FOMC meeting beginning today and lasting for two days.

ICE WTI oil is down 0.44% at $98.25 per barrel with NYMEX natural down 0.34% at $3.56 per therm. COMEX gold is down 0.48% at $1345.70 per ounce.

 

Forex focus

Japan’s currency gained 0.2 percent to 134.45 per euro early in London from yesterday. It added 0.2 percent to 97.54 per dollar. The yen is set for a 0.8 percent rise versus the greenback and 1.1 percent drop versus the euro this month.

The dollar was little changed at $1.3784 per euro from yesterday, poised for a 1.9 percent decline this month. It touched $1.3832 on Oct. 25th, the weakest since November 2011.

Europe’s 27 nation shared currency reached 85.72 pence, the highest level seen since Aug. 29th, before trading at 85.60, 0.2 percent stronger than yesterday’s close. Australia’s dollar sank 0.7 percent to 95.10 U.S. cents, after earlier dropping to 95.04, the lowest since Oct. 16th.

Australia’s dollar fell 0.7 percent to 95.09 U.S. late in Sydney and touched 95.04, the least since Oct. 16th. It slumped 0.8 percent to 92.78 yen. New Zealand’s dollar lost 0.3 percent to 82.74 U.S. cents and 0.5 percent to 80.70 yen. Australia’s dollar fell to the lowest in nearly two weeks after Reserve Bank Governor Glenn Stevens said it may be “materially lower” in the future.

 

Bonds

The five-year yield dropped one basis point, or 0.01 percentage point, to 1.28 percent early in London time. The price of the 1.375 percent note due September 2018 was at 100 15/32. Yields dropped to 1.25 percent on Oct. 23rd, the least since June 19th. The two-year yield was little changed at 0.32 percent while that on benchmark 10-year notes was 2.52 percent. Prices of longer-term securities tend to rise or fall more than shorter-term debt when interest rates shift.

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