Aussie jumps after elections, Japanese headline GDP beats expectations

Summary:

• Australian dollar rises 0.8% this morning after elections taking place last weekend
• Japanese GDP comes in above expectations, the details portray weak domestic demand though
• Google suspends business with Huawei after Trump blacklisted the Chinese company last week

New-old government stays in place

The Australian dollar jumped almost 1% in early trading in Sydney after investors were digesting the elections’ outcome. The elections saw the current Liberal-National (L/NP) coalition being re-elected with a chance to secure a majority in the parliament. Having counted 76% of votes the ruling coalition has got 75 seats in the Australian parliament with 76 seats needed to win, however, the predictions clearly point to a win of the L/NP coalition. The elections’ result was a surprise for market participants, but from a markets’ point of view it is the best possible solution. With the current coalition staying in place investors concerns about a change in the political scene have been quelled. In early European trading the Australian dollar is gaining more than 0.7% against the US dollar being by far the best performing major currency. Aussie traders should circle in their calendar Tuesday this week as a speech of RBA’s Philip Lowe, titled “The Economic Outlook and Monetary Policy”, is scheduled. Nevertheless, we do not think that this weekend’s election will be a breakthrough for the Aussie dollar. Keep in mind that inflation in Australia remains sluggish while the RBNZ has recently decided to cut rates. As a result, the RBA could be under pressure to follow if price growth does not accelerate toward its objective. That is one the greatest downside risks for the Antipodean currency in the medium-term. On Monday the probability of a rate cut by the year-end has slightly declined.

The Aussie could have some space to continue unfolding its post-elections strength, at least from a technical standpoint. Source: xStation5

Japanese GDP beats expectations

On the face of it, the Japanese economy grew in the first quarter at a decent pace of 2.1% in annualized terms, easily beating the consensus suggesting a 0.2% contraction. Nonetheless, the details of the release turn out to be much less positive. First of all, growth was mainly driven by weak domestic demand with imports driving down 4.6% compared to the previous quarter. In addition, growth was also supported by inventories, hence the two very volatile components stood mainly behind the solid rate of economic growth there. On the other hand, the key engines of growth - exports, investments and private consumption - declined during the quarter. However, both second and third quarters should show a rebound in these figures due to last-minute purchases ahead of the sales tax increase planned for October. After the GDP release Japanese chief Cabinet secretary said the data had absolutely no impact on a sales tax hike plan. In response to the data the Japanese stock market is roughly 0.3% higher while the yen is trading barely changed.

Falling imports stood behind a decent rate of growth of the Japanese economy during the first quarter. Source: Bloomberg

In the other news:

• Google has suspended some business with Huawei after Donald Trump blacklisted the Chinese company last week

• New Zealand’s services PMI fell in April to 51.8 from 52.3

• Saudi Arabia’s energy minister Khalid al-Falih said on Sunday that there was no consensus to drive down oil inventories