While Europe provided some positive leads, it wasn’t enough to really drive a risk rally heading into the weekend. There has been some activity on the economic front in Japan where the much-anticipated CPI data was released today. The headline CPI reading came in at 1.1% y/y and ex fresh food was up 0.9%, which was bang in line with consensus. However, the CPI reading ex-food and energy came in at 0.3%, ahead of estimates of 0.2%. This reading is key as energy prices tend to distort the actual progress that the BoJ would want to see. Japan’s industrial production was a worry, coming in at just 4.7% y/y when the market was looking for 6.3%. Perhaps the mixed nature of the data isn’t such a bad result as it has resulted in the yen losing further ground to the greenback and euro. EUR/JPY is within striking distance of 140 and trading at its highest since October 2008. USD/JPY is also making progress and is approaching May highs.
Weaker yen not driving the Nikkei higher
Surprisingly, the yen weakness hasn’t quite pushed the Nikkei much higher today with a relatively flat performance. The Nikkei is testing a multi-year downtrend and this could be one of the reasons why equities are subdued today. Over in China, the Hang Seng is modestly firmer. The ASX 200 is a touch weaker with the banks weighing while the big miners are firmer. A sharp drop in Graincorp after the ADM bid was blocked by the government is also contributing to the negative tone. There is clearly some month–end rebalancing taking place and this is resulting in some disjointed moves.
Mixed open for Europe
Looking ahead to the European open, we expect to see the major bourses trade flat to modestly firmer. The DAX remains the index to watch and could be testing yesterday’s highs just shy of 9,400 again. Traders will be eyeing German retail sales, French consumer spending and the region’s CPI flash estimate for more direction. Further evidence of reduced deflation risk for the region could push the DAX and the euro higher yet again. Italy’s MIB was also a standout as investors cheered former PM Berlusconi’s removal from Senate and a stronger business survey. However, the MIB looks like it will open mildly weaker today, giving back some of yesterday’s gains.
BoE sounding a hawkish tone
The FTSE underperformed the region yesterday after the BoE took steps towards winding back on policy stimulus by ending mortgage loan incentives in a bid to restrain the UK housing boom. This resulted in some hefty gains for the pound and weighed on equities. Mark Carney feels this will contribute to a constructive evolution of the housing market. GBP/USD is near its highest level since January as we continue to get some hawkish commentary out of the BoE. The pair rallied to a high of 1.6357 and came within touching distance of this year’s high of 1.6328, which was printed in January this year. A break here would see cable trade at its highest level since August 2011. Later today we have consumer confidence, a house price index report, net lending to individuals and mortgage approvals which could be a source of volatility for the pound.