This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Japan winning the 2020 summer Olympics is a massive boost to Japanese confidence across the economic spectrum. Business confidence will improve as industries see the effects of increased government and private spending over the next seven years, plus never discount ‘national pride’ and the effect it will have on consumer spending and household spending.
For an economy that is desperate to snap out of 20 years of deflation this is a huge shot in the arm. The total cost of delivering the London Olympics was US$13.9 billion, to put that in perspective, the 2000 Sydney Olympics was US$6.6 billion. The Beijing Olympics US$43 billion total, the Tokyo Olympics will be in the same cost bracket as the London and Beijing, and it is the perfect fit to Prime Minister Abe’s stimulus plans.
The majority of this spending will be in infrastructure. Again using the Beijing Olympics as a guide, estimates believe over three quarters of the iron ore needed to create the steel ‘Bird’s Nest’ (Beijing’s Olympic stadium) and the rest of the village came from Australia. Having the 2020 Olympics in our back garden again will be a huge investment opportunity for Australian cyclical companies, and it’s not just the major infrastructure companies and the miners that will take advantage of this event. Sports and event constancy firms will be in demand, tourism operators will benefit from increased trip bookings to Japan, and spending in other infrastructure to get the city ready will mean engineering firms could benefit.
In a time when the economic cycle in Australia is slowing, benefits from a stabilising region should filter through over the coming years.
This brings China back into the picture; the release of the trade balance yesterday was a perfect tonic to the stabilising calls. The exports figures were well ahead of expectations and rose 7.2%. Shipments rose 5.1%, with imports up 10.9% to see a very strong surplus number of US$28.6 billion versus an estimated US$20.3 billion, and last month’s read of US$17.8 billion.
The export read illustrates one thing more than anything; the biggest consumers of Chinese goods are the US and Europe. This export read supports the data that has been coming out of these two super giants – Europe has snapped out of recession and consumer confidence is rising. The US has seen marked improvements across household wealth, household spending and employment.
However, the non-farm payroll figures from Friday night have put a bump in the road of the employment call. Chicago Federal Reserve president Charles Evans’ employment change call of 200,000 is still a long way off after the 169,000 print. It has seen Merrill Lynch revising its ‘probably’ calls for tapering in September to below half. Merrill Lynch believes there is a 55% chance of no change in eight days time. The other concern out if the employment number is that the participation rate fell to 63.2%; the lowest reading since 1978; which means 314,000 people have fallen out of the employment market. This will weigh on Fed members minds.
Ahead of the open, we are calling the ASX 200 up 25 points to 5170 (0.78%) as the Japanese market looks to open up 2.7% to 14190 – with the USD/JPY touching parity at ¥99.80. This will filter through to the regional market over the day and could see the ASX adding more than the current call.
BHP’s ADR is suggesting the stock will add 13 cents on the open to $35.29; however this will not have factored in the Chinese trade balance numbers and could really jump out of the blocks. Iron ore however did slip over the weekend and may drag on the bounce expected in the material plays.