Japan’s services PPI inflation nudges down

Emily Nicol

Markets mixed in Asia today, Chinese equities continue to struggle, but gains elsewhere
While heavy losses in Chinese equity markets had weighed on US futures earlier in the day, and despite a weaker than expected new home sales report for June, Wall Street went on to set another record high on Monday with the S&P500 advancing a modest 0.2%. So while USTs had rallied into the US open – with the 10Y note touching 1.22% – that rally was quickly unwound, with the 10Y closing 1bp higher at 1.29%. Elsewhere in markets, metals prices were notably firmer, while US breakeven inflation rates rose for a second day with the closely watched 5Y5Y forward climbing to 2.27% – up 18bps in just two sessions and so closing at the highest level since mid-June. Positive economic sentiment reduced demand for the greenback.

Since the close, US equity futures have moved a couple of tenths lower and UST yields have also declined fractionally. Against that background, it has mostly been a positive session in Asia. In Japan, the TOPIX closed up 0.6% – thus stringing together three positive sessions for the first time since mid-June – while JGB yields are fractionally higher ahead of a speech by BoJ Governor Kuroda (scheduled to commence shortly). Equity markets in South Korea are enjoying slightly smaller gains. By contrast, after declining more than 4% yesterday, the Hang Seng is currently down a further 2% today – now more than 16% below its mid-February high – while markets in Mainland China are down a little more than 1%.

In the Antipodes, Australia’s ASX200 has gained 0.5% despite news that consumer confidence has sunk to an eight-month low due the recent virus outbreak. Ahead of tomorrow’s Q2 CPI report – and a speech late today by RBA Deputy Governor Debelle that is very unlikely to touch on monetary policy – AGCB yields have increased only modestly. While Victoria and South Australia will end their lockdowns at midnight tonight (social distancing protocols will remain at public venues), New South Wales reported a new high of 172 virus cases over the past day. This validated officials’ fears following the weekend’s protest gatherings, and makes it even more likely that the lockdown will be extended in coming days.

Japan’s services PPI inflation slows to 1.4%Y/Y in June
A quiet day for data in Japan brought only the release of the BoJ’s services PPI report for June. In headline terms, the index increased a modest 0.1%M/M, thanks to higher prices for office rentals and advertising services (the latter especially responsive to changes in pandemic restrictions). The annual rate of inflation eased 0.1ppt to 1.4%Y/Y, which was nonetheless slightly firmer than market expectations. The most significant contributor to the slight decline in annual inflation was real estate services, with prices rising 2.5%Y/Y compared with 4.8%Y/Y in May. In addition, while advertising services increased 13.3%Y/Y – with television advertising prices rebounding almost 34%Y/Y – this was down from 14.8%Y/Y previously. Prices for transportation and postal activities increased 1.3%Y/Y, up from 1.1%Y/Y in May, with prices for ocean freight up 31.0%Y/Y and prices for air freight increasing 10.6%Y/Y.

China’s industrial profit growth slows in June as base effects peter out
A similarly quiet day for data in China saw only the release of figures on industrial profits for June. With base effects associated with China’s early-2020 lockdown continuing to peter out, growth moderated to 20.0%Y/Y in June from 36.4%Y/Y in May (profits in the month of June were less than in May, but above that seen in April and March). Cumulative profits for the year to date – which continue to be impacted significantly by base effects – increased 66.9%YTD/Y on sales that grew 27.9%YTD/Y. Within the manufacturing sector, the strongest growth was in the ferrous and non-ferrous metal smelting industries, where profits grew more than three-fold, while profits in the chemical industry almost tripled.

Euro area bank lending data to show continued firm growth in mortgage borrowing, but subdued pace of borrowing by businesses
A relatively quiet day ahead for euro area data brings the release of M3 money supply figures for June. The annual pace of M3 growth is expected to slow a further 0.2ppt in June to fourteen-month low of 8.2%Y/Y, 4.3ppts down from January’s peak. The associated bank lending data are likely to show continued strong growth in loans for house purchases, but net new loans to business seem likely to remain relatively subdued. Today also brings French jobseeker data for Q2, with the number filing jobless claims likely to fall in Q2 for the fourth successive quarter, from 3.56mn in Q121 and a pandemic peak of 4.14mn in Q220.

CBI survey to shine light on UK retail sales at start of Q3
A quiet week for UK economic data continues today with just the CBI’s latest distributive trades survey due. This will provide an update on retail sector activity at the start of Q3 following the moderate growth in June reported in the official retail sales figures last Friday.

US: Durables goods orders and Conference Board survey the data focus today; also a busy day for corporate earnings, with the tech heavyweights in focus
With the Fed’s policy meeting looming, the highlights of today’s US economic diary are the Conference Board’s consumer survey for July and the advance durable goods orders report for June. Given the weakening seen in the University of Michigan’s survey – attributable to upside surprises to inflation – the former will almost certainly backtrack from last month’s post-pandemic high. However, Daiwa America’s Mike Moran expects that durable goods orders are likely to have firmed, not least due to a lift in Boeing’s aircraft orders. The Richmond Fed’s manufacturing survey and the S&P/Corelogic and FHFA home prices indexes round out today’s economic diary. Meanwhile, there are more than 40 major corporates due to report their earnings today, including tech heavyweights Apple, Alphabet and Microsoft (all reporting just after the close).

Australian consumer confidence declines to an 8-month low amidst virus outbreak
Unsurprisingly, Australia’s ANZ-Roy Morgan consumer confidence index took a further leg down over the past week, declining 3.5% to 100.7 – the lowest reading since early November last year, when the state of Victoria had just completed its second extended lockdown. The index measuring respondents’ year-ahead outlook for the economy fell 6.0% and the index measuring perceptions of conditions for making major household purchases fell an even greater 6.6%. The index measuring respondents’ five-year-ahead outlook for the economy – which has been trending down since February – fell just 0.5%, but is now at its lowest level since late September.

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.