Japan’s department store sales up in April, thanks to base effects

Chris Scicluna

A quiet start to the week in most markets but metal prices lower as China expresses concern about excessive speculation
A subdued end to last week saw the S&P500 close down just 0.1% on Friday, with existing home sales falling short of expectations but the Markit PMIs making new highs following encouraging surveys from Europe. Treasury yields were similarly little changed – the 10Y yield was steady at 1.62% – while the greenback firmed only fractionally. Crude oil rebounded 3%, moderating the losses recorded earlier in the week, while Bitcoin fell to end Friday at around $36k.

So far it has been a relatively quiet start to a new week that features only a handful of economic reports that have the potential to drive market direction. US equity futures are about ½ppt higher, and most bourses in the Asia-Pacific region also made moderate gains. In Japan, the TOPIX advanced 0.4%, even as the Yomiuri newspaper reported that Japan’s government was considering extending the current state of emergencies in nine prefectures, perhaps as far as 20 June. Equities also gained in China, but fell back in Hong Kong and South Korea, and currently showing a mix of modest gains and losses in Europe. Bond markets have been relatively quiet too, albeit with most sovereigns marking modest gains in the Asia-Pacific and Europe. And Bitcoin is currently trading at around $36.5k after falling to almost $31k yesterday. Meanwhile, industrial metals futures – especially iron ore – have weakened after China’s NDRC issued a statement today following a weekend meeting convened with other Chinese regulators and industry representatives. The NDRC stated that it viewed recent price rises as due in part to excessive speculation. It warned that it would step up its investigations and take a zero tolerance approaching to punishing illegal acts of hoarding and price-setting collusion.

Japan’s department store sales rebound 167%Y/Y in April; labour market and Tokyo CPI data the focus over the remainder of a quiet week for Japanese data
In an otherwise quiet start to the week, Japan’s national department store sales grew 167.0%Y/Y in April – not surprising considering sales had been down 72.8%Y/Y a year earlier during the first coronavirus wave lockdown. Indeed, even with that rebound, sales were still over 29% lower than in April 2019 and the second worse for an April month since figures began in 2001. In the detail, spending on clothing grew over 281%Y/Y, but only after a near 83%Y/Y decline a year earlier. Spending on household goods increased almost 94%Y/Y, having declined almost 60%Y/Y a year earlier.

Looking across the remainder of this week, there are very few economic reports to grab investors’ attention. Following last week’s release of national CPI data, tomorrow the BoJ will release its underlying inflation measures for April, which will doubtless remain soft but unlike the core CPI measures won’t be greatly impacted by the significant decline in mobile phone charges that drove the main headline and core measures lower. The BoJ will release the services PPI for April on Wednesday. After that, attention will turn to Friday’s household employment survey for April and advance Tokyo CPI for May. The former is likely to display continued resilience if the PMIs for that month are any guide, while the latter should report broadly stable inflation rates following last month’s phone charge-induced dip.

A quiet week ahead in China
There were no significant economic reports in China today and the remainder of this week’s diary features only Thursday’s news on corporate profits for April. The next significant data will come a week from now when the official PMI surveys for May are scheduled for release.

Further euro area surveys to echo Friday’s upbeat flash PMIs
Following Friday’s strong flash PMIs and much improved consumer confidence index, several further sentiment survey results for May seem likely to underscore that the euro area economic recovery is now well underway. In particular, the ifo survey for May will be published tomorrow, with the French INSEE business confidence survey probably coming the following day, Italy’s ISTAT economic sentiment surveys on Thursday and the European Commission’s full economic sentiment survey results due on Friday. Among other releases, the first flash estimate of inflation in May – which will come from France on Friday – will be watched. Last month, the EU-harmonised measure of French inflation rose 0.2ppt to 1.6%Y/Y, the highest since January 2020, and a further increase of 0.2ppt is likely in May. In addition, retail sales data from France and Spain, due at the end of the week, will provide the first look at household consumption at the start of Q2. This week will also bring more commentary from ECB policymakers, including Chief Economist Lane speaking tomorrow about the bank’s strategic review.

A quiet week ahead in the UK
A quiet week ahead in the UK will bring no show-stopping releases. But tomorrow brings the release of the CBI’s distributive trades survey for May, which will provide the first indication of the strength of retail sales this month after the surge in April. Public finances data for April are also due tomorrow. Public sector net borrowing (excluding banks) is expected to come in at about £32bn in April, down from the record high of £47.2bn recorded in the same month last year. Meanwhile, after the (somewhat lagging) ONS data last week reported house price growth in March of more than 10%Y/Y, the highest since 2007, Friday will bring the latest Nationwide house price index, which will provide the first indication of residential property prices in May. This week will also see several BoE policymakers speak publicly, including Governor Bailey today at the Treasury Select Committee.

April activity indicators and core PCE deflator the focus in the US this week
While there are no major economic indicators due for release in the US today, the remainder of this week contains a number of important activity indicators, as well as news on consumer sentiment and inflation. Tomorrow will bring the release of the Conference Board’s consumer survey for May. Daiwa America Chief Economist Mike Moran thinks that after increasing sharply over the previous two months, the headline index is at risk of a modest pullback given the inflation concerns that were expressed in the preliminary University of Michigan consumer survey results released earlier this month (the final results of the latter survey will be released on Friday). Also tomorrow, Mike expects a modest (2.1%M/M) pullback in new home sales during April from what was a 15-year high in March, while the S&P.CoreLogic and FHFA home prices measures for March will doubtless continue to portray upward pressure on prices. The Richmond Fed’s manufacturing survey for May completes a busy day.

After a break on Wednesday, the dataflow resumes on Thursday with the release of revised GDP data for Q1. Mike expects upward revisions to consumer spending, residential investment and inventories to lift GDP growth by 0.4ppts to 6.8%AR. Further clues on how activity has continued in the current quarter will come from the durable goods orders report for April, with Mike expecting a 12th consecutive advance to lift bookings comfortably above pre-pandemic levels. News regarding pending home sales, together with wholesale and retail inventories in April, will also be delivered on Thursday.

On Friday, most interest will centre on the personal income and spending report for April. The former jumped more than 21%M/M in March due to the receipt of stimulus payments, and so Mike expects a 13.0%M/M downward correction this month. Encouragingly, given the resilience seen in the retail data, Mike expects a modest 0.2%M/M lift in spending in April despite the strong 4.2%M/M uplift seen in March. Meanwhile, following the shock CPI reading, Mike estimates that the core PCE deflator will post a 0.5%M/M increase – the most since 2001 – which given reinforcing base effects should lift annual inflation to around a three-decade high of 2.8%Y/Y. Finally, Friday will also bring the Chicago PMI for May and the advance merchandise trade report for April. Regarding the latter, Mike expects both exports and imports to ease, but the decline in imports should dominate to deliver a modestly narrower trade deficit for the month.

Q1 GDP indicators and CAPEX forecasts ahead in Australia this week
There were no economic reports of note in Australia today. Looking ahead, tomorrow will bring the release of preliminary merchandise trade data for April and the weekly ANZ-Roy Morgan consumer confidence report. On Wednesday, the ABS will report on construction activity during Q1, helping analysts to refine their estimates ahead of next week’s GDP report. Given a steep increase in dwelling approvals, anything other than a solid lift in construction activity would be a significant surprise. On Thursday, the CAPEX survey will cast further light on GDP growth in Q1, with a particular focus on investment in plant and equipment. Perhaps more importantly, the forward-looking part of the survey will cast light on firms’ expectations for capex over the remainder of this financial year as well as providing firms’ second forecast of spending for the 2021/22 financial year – forecasts that are bound to have strengthened given the recent sharp improvement in business sentiment.

Kiwi retail sales rebound in Q1; RBNZ forecasts likely more upbeat on Wednesday, but policy message likely unchanged; trade, consumer confidence and employment data also to come
After declining 1.2%Q/Q in Q4, Kiwi retail sales rebounded 2.5%Q/Q in Q1, so lifting annual growth by 1.6ppts to 6.5%Y/Y. In volume terms sales also increased 2.5%Q/Q – i.e, the deflator was unchanged – which compared favourably with the near 2%Q/Q decline that the consensus had expected in light of the continued absence of foreign tourist spending in the important summer months. Core spending, which excludes fuel and vehicles, increased an even more solid 3.2%Q/Q, led by a more than 16%Q/Q lift in spending on recreational goods and an 8.4%Q/Q lift in spending on electrical and electronic goods. Spending on food and beverage services fell just 0.4%Q/Q and spending on accommodation increased 2.7%Q/Q despite the aforementioned lack of tourist spending.

Looking ahead to the remainder of the week, most interest will centre on Wednesday’s RBNZ OCR review and updated Monetary Policy Statement. While, in common with other central banks, the RBNZ will doubtless revise up its outlook for activity and inflation, we think that there is virtually no chance of a hike in the OCR or any substantive changes in the Bank’s QE or Funding for Lending programmes. However, investors will be looking for any cracks in the Bank’s dovish rhetoric that might point to a possible first policy tightening late next year, as markets have begun to price in response to consistent upside surprises in key activity, sentiment and pricing indicators (with last week’s Budget lending further support to an economy that increasingly seems not to need it).

Aside from the RBNZ’s policy review, Wednesday’s merchandise trade report for April and Friday’s ANZ consumer confidence reading for May are the main Kiwi diary entries of note this week. In addition, on Friday Statistics NZ will publish its experimental tax-based employment indicators for April. 

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