Japan’s money growth slows further

Chris Scicluna

US PPI surprises on high side but soothing Fedspeak calms bond markets and sends Wall Street higher; so Asian equities rebound today
Hard on the heels of Wednesday’s shock CPI report, yesterday’s US PPI for April also printed well above market expectations. Indeed, the headline PPI increased 0.6%M/M – double the consensus expectations – lifting annual growth to 6.2%Y/Y – the largest increase since the PPIs were reconstructed in 2010. And the two core measures – the second excluding trade services, as well as food and energy – both increased an even greater 0.7%M/M, to be up a record-breaking 4.1%Y/Y and 4.6%Y/Y respectively.

Nonetheless, after peaking just above 1.70% ahead of the release of the PPI data, the 10Y UST yield subsequently drifted lower to close at 1.65% – down 4bps on the day. And so, after falling heavily on Wednesday, Wall Street rebounded somewhat with the S&P500 advancing 1.2% and the Nasdaq closing 0.7% higher. The greenback held its previous day’s ground despite the modest decline in UST yields. The market serenity owed in part to more soothing words from the Fed, with Governor Waller opining that despite the high CPI report “…the factors putting upward pressure on inflation are temporary, and an accommodative monetary policy continues to have an important role to play in supporting the recovery,”. Earlier the Richmond Fed’s Barkin stated that he didn’t view persistent recurring inflation as likely.

On a very quiet day for local economic news, today equity markets in the Asia-Pacific region have taken their lead from Wall Street, with solid gains recorded across most of the major indexes. In Japan, after three days of losses, the TOPIX has rebounded 1.9%, even as pandemic response minister Nishimura said that current state of emergency in six prefectures would be expanded to the prefectures of Hokkaido, Hiroshima and Okayama, effective from Sunday (PM Suga is due to hold a news conference at 8pm local time). In China, the CSI300 has posted a similar advance, while the TAIEX broke its losing streak with a rise of 1.0% albeit closing down more than 8% on the week. Gains of around ½ to 1% have been recorded in Hong Kong, South Korea and Australia, while Aussie bonds followed USTs slightly higher. But Singapore stocks were little changed as doubts emerged that the planned Hong Kong-Singapore travel bubble would go ahead as scheduled on 26 May.

Japan’s money growth slows further in April as base effects begin to unwind
The only data released in Japan today were the broader monetary aggregates for April. With monthly increases continuing to run at a much slower pace than a year ago when liquidity was beginning to be pumped into the economy at a frenetic pace, annual growth in both M2 and M3 slowed for a second consecutive month. In the case of M2, growth slowed a further 0.2ppts to 9.2%Y/Y (it grew at a 5.8%AR during April), while growth in M3 slowed 0.1ppt to 7.8%Y/Y (it grew just 3.4%AR during April following growth of just 3.1%AR in March). Given the exceptionally strong growth in the monetary aggregates seen in May and June last year, a much more pronounced slowdown in annual growth rates will occur over the next two months.

Account of 22 April ECB meeting might offer few insights into likely pace of PEPP purchases in Q3; final Spanish CPI data due on a quiet end to the week
The most notable economic news from the euro area today will be the release of the account of the 22 April ECB Governing Council meeting, when President Lagarde continued to obfuscate about the likely extent of the acceleration in the pace of PEPP purchases this quarter. Data now suggest that the ECB aims to buy at an average net pace of about €80bn per month, up from an average of about €60bn in the prior nine months. It remains to be seen quite how illuminating today’s account will be about the likely direction of policy in Q3, which will be determined at the next policy meeting on 10 June on the basis of updated economic projections and an assessment of financial conditions.

Data-wise, the one release of passing interest in the euro area will come in the shape of final Spanish inflation numbers for April. The preliminary figures suggested that Spanish HICP inflation leapt a marked 0.7ppt to 1.9%Y/Y, the highest since October 2018, with the national CPI rate up an even steeper 0.9ppt to 2.2%Y/Y. While no detail was published then, according to the Spanish statistical agency inflation was driven higher by prices of electricity and fuel, accentuated by base effects. And core inflation on the national measure fell back 0.3ppt to zero percent. The final French data released earlier this week were revised down, so a further downward revision in today’s Spanish figures would raise the likelihood of a similar revision in next week’s euro area data. No new economic data are due from the UK.

Focus turns to activity data in the US today: retail sales and IP reports the highlights, while UoM consumer sentiment survey also due
While the focus in the US this week has so far been on inflation – and today will bring news on developments on imports prices during April – most attention today will be on the latest indicators of economic activity and consumer sentiment. With stimulus payments still flowing to households, Daiwa America’s Chief economist Mike Moran expects retail sales to have increased a further 0.8%M/M in April despite recording a near 10%M/M increase in March. However, with output in the manufacturing sector likely hampered by global semiconductors shortages, Mike expects IP to have been broadly flat in April following a 1.4%M/M lift in March. Meanwhile, he expects that the preliminary results of the University of Michigan’s consumer survey for May will point to a further lift in sentiment, buttressed by rising asset prices and an improving labour market.

Kiwi manufacturing PMI falls 5.2pts to still very robust 58.4 in April
After surging to a record 63.6 in March, the BNZ-Business NZ manufacturing PMI fell back 5.2pts to 58.4 in April – nonetheless, one of the highest readings in the surveys 19-year history and more than 5pts above the historic average for the index. In the detail, both the new orders and deliveries indexes suffered double-digit declines, although the former remained above 60 and more than 5pts above its long-term average. The production index fell just 2pts to 64.5 – almost 11pts above the long-term average – and the employment index nudged down 0.9pts to 52.7, indicating that firms remain in expansion mode.

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