The Bank of Japan’s Monetary Easing Aid Industrial Production While Hurting Spending
Japanese data released overnight was largely disappointing aside from the inflation figures which showed inflation steadying near the Bank of Japan’s target. The weakening of the Yen has had its benefits, namely manufacturing and industrial production which printed at 4.00% versus expectations of 2.70% and expansion of 0.80% in the prior period. However, the more worrying data was the -2.00% contraction in retail sales year over year and household spending collapsed -5.10% over the same time period. While the dramatic activities of the Bank of Japan’s easing program has improved certain aspects of the economy, namely warding off deflation, real growth remains elusive as GDP expansion net of inflation is actually running at a negative pace for the last three quarters.
Ahead of today’s GDP reading, U.S. data is confirming fears that a broader slowdown is gaining traction as evidenced by the substantial drop in inflation and weak capital expenditures. Although the core CPI met expectations, printing in-line with expectations at 1.60% year over year, adding back in food and energy prices CPI shrank -0.10% year over year. Although the Federal Reserve via Chairwoman Yellen have called the drop in energy prices transient and likely to abate in the second half of the year, the 2% targeted by the Fed looks distant considering the risks to the outlook. Initial jobless claims also were worrying, climbing back above 300,000 to 313,000 which happened to be the biggest jump in claims since 2013, possibly signaling the end of the trend lower in claims figures.
With Euro members expected to vote on the latest Greek proposals today, expectations are high that the newest measures will be approved despite strong opposition from certain countries. Taking into consideration Greece’s worsening finances, the latest deal is unlikely to bring any relief to the beleaguered nation as an IMF repayment quickly approaches. Greece’s funding needs for 2015 have been estimated at over €40 billion, a figure that is unlikely to be found in government revenues. March’s debt repayment and rollover obligations total more than €7 billion, money Greece does not have based on the current outlook for funding. Unless the IMF and ECB provide some stop-gap measures to fill the void, Greece could easily miss repayments and default quickly than previously anticipated.
EURGBP Downward Channel Trading Opportunity
Although markets initially cheered on the latest and greatest Greek deal, exuberance has caught up with reality, forcing the Euro lower against major peers. The temporary lift in prices was met with the harsh truths facing the nation as it will struggle to repay debts next month. This fear has sent the euro tumbling while the outlook for the U.K. remains relatively stable. The downward trending equidistant channel forming in EURGBP has a bearish bias, with optimal strategy dictating short positions at the top of the channel to be closed out at the bottom of the channel. Any fighting of the move lower is not ideal considering worsening risk-reward characteristics of going long into a downtrend. Data deteriorations from the Eurozone could send the pair lower, breaking out from the channel to the downside in a volatile, momentum fueled move.