Japan’s monetary base growth slows further

Chris Scicluna

New highs on Wall St ahead of payrolls; Asia mixed today with Chinese equities sharply weaker, but gains seen in Japan; AGCB yields lower as next week’s key RBA meeting nears
After a couple of quiet sessions, and despite the looming payrolls report, Wall Street regained upward momentum on Thursday with the S&P500 advancing 0.5% to a fresh record high. Gains were broad-based amidst news of another sturdy ISM manufacturing reading and as initial jobless claims fell more than expected to a new pandemic low. However, it was another quiet day in the Treasury market, with the 10Y UST closing little changed at 1.46%. Elsewhere in markets, crude rallied more than 2% with WTI futures above $75/bbl as the OPEC+ meeting ended without an agreement to boost production. The greenback was slightly firmer.

Against that background, and with US equity futures since moving sideways, it has been a mixed close to the week in Asia-Pacific equity markets. Weighing on sentiment have been developments in Chinese markets, with the CSI300 quickly falling more than 2% in early trade, and down almost 2.5% as we write (the Hang Seng is also sharply weaker). The reasons for this decline are not especially clear, although some analysts have suggested that the CCP’s now-concluded 100-year anniversary celebration – which might have provided some insulation against bad news – may have delayed reaction to recent softer data and geopolitical tensions. By contrast, after closing lower yesterday following a disappointing Tankan survey, Japan’s TOPIX has advanced a solid 0.75%, with the local focus turning to this Sunday’s municipal election in Tokyo. Indications are that the election will provide a much-needed boost for PM Suga and the LDP ahead of the General Election later in the year. After the LDP performed poorly in 2017, a recent Nikkei newspaper poll indicated 32% support for the LDP, which presently holds only 25 of the 127 seats in the assembly, whereas the Tokyoites First party held just 12% support and so stand to lose many of their current 45 seats.

In Australia, where housing loan approvals rose to yet another fresh record high in May, the ASX200 increased 0.5%. However, despite USTs remaining steady, the 10Y AGCB yield has declined 4bps to 1.47% with investors perhaps becoming less confidence of a hawkish shift at next week’s RBA policy meeting in light of the recent virus outbreak. Indeed, the yield on the November ’24 bond is now 8bps off its peak, but at 0.39% continues to indicate that investors do not expect the RBA’s Board to roll its 0.1% 3Y yield target from the April ’24 bond. In pandemic news, the state of NSW announced a further 31 cases today – the most during this outbreak – while the Government announced that it would reduce incoming passenger numbers by 50% due to concerns about the delta variant. But Northern Territory lifted its snap lockdowns of Darwin and Alice Springs earlier today, and Western Australia will reportedly exit lockdown at midnight. Looking further ahead, PM Morrison announced that the Government will adopt a four-phase plan to reopen Australia, with each new phase to be triggered by vaccination milestones. The exact details are yet to be worked out, but given the country’s very slow vaccination progress it is likely to be many months before such a plan is implemented.

Japan’s monetary base growth slows further in June
Following a couple of busy days, the only economic data in Japan today were the BoJ’s monetary base figures for June. With the BoJ’s asset purchases having slowed from the elevated rates seen at the onset of the pandemic, annual growth in the monetary base slowed for a second consecutive month, reaching 19.1%Y/Y in June from 22.4%Y/Y in May. Further slowing in the annual growth rate lies ahead. Indeed, in seasonally-adjusted terms, the monetary base contracted in June for the first time in 15-months and by the most since December 2011.

PPI data ahead today for the euro area while the UK diary is bare
The week will end on a relatively quiet note for economic data from the euro area with May's producer price figures for the region most notable today. With prices likely to rise by 1.0%M/M or more for the fourth month out of the past five, the annual PPI rate is likely to rise about 2ppts to about 9.5%Y/Y, which would be the highest since 1982. Given base effects, however, that is likely to represent the peak. Spanish unemployment claims data for June are also due shortly and should show continued improvement with the economy rebounding. Meanwhile, it should be an uneventful day in the UK with no top-tier economic data due for release.

Non-farm payrolls take centre stage in the US today, with sizable jobs gain expected
Ahead of the long weekend break – the Independence Day holiday will be observed on Monday – a busy week of data in the US concludes today with the much-awaited official employment report for June. Daiwa America Chief Economist Mike Moran expects a strong above-consensus 800k lift in non-farm payrolls, which would be the firmest gain since August last year, and up from 559k in May. While this should be sufficient to lower the U-3 unemployment rate by a further 0.2ppt to 5.6%, Mike does caution that the labour force is likely to receive a boost as more attractive wage offers and the looming expiration of supplemental unemployment benefits will likely encourage some individuals to seek work. With one eye on inflation, the average earnings data from this report will also be of some interest.

While the employment report will dominate investors’ attention, today will also see the release of the full trade balance and factory orders for May. Based on the advance data released already, Mike expects the trade deficit to have widened $2.6bn to $71.5bn while the already-reported rebound in durable goods orders should help to lift total factory orders by a solid 1.5%M/M.

Aussie new housing loan approvals rise to a new record high in May
In yet another upside surprise relating to the Aussie housing market, today the ABS reported that the value of new housing loan approvals increased a further 4.9%M/M in May to a new record high. This lifted annual growth to a whopping 95.4%Y/Y – amazingly, a rate that is only slightly flattered by base effects associated with the onset of the pandemic. Approvals for investor loans jumped 13.3%M/M and 116.0%Y/Y, but are yet to exceed the record high level set in early 2015. Meanwhile, the value of approvals for owner-occupier loans increased 1.9%M/M and 88.4%Y/Y, and is 68% higher than the pre-pandemic level. Approvals for personal fixed term loans also increased a strong 5.6%M/M in May and were up over 42%Y/Y.

Kiwi consumer confidence steady in June
The ANZ consumer confidence index was virtually unchanged in June, rising just 0.1%M/M to 114.1 and so remaining slightly below both April’s post-pandemic high and the long-term average. In the detail, while respondents were slightly more optimistic about the economy’s near-term outlook and slightly more inclined to make large household purchases, respondents were somewhat less optimistic about the economy’s long-term outlook.

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