Weakish data from Japan, markets calm after FOMC

Summary:

• A bag of macroeconomic releases from Japan turned out to be ambiguous

• Stock and currency markets go nowhere after the FOMC minutes

• Chinese PMI diappoints just ahead of a crucial Trump-Xi meeting

Data from Japan mixed

Asian equity markets have settled down following the FOMC minutes released on Thursday. The document showed that a next month rate hike seems to be a done deal but then the Fed might strike a bit more cautious tone. This is why the interest market is currently pricing in just a single move by 25 basis points during the entire 2019 compared to three moves seen by FOMC members. The release did not bring more sustained results as both the US dollar and the US stock market ended the day barely changed. A lack of momentum has been present across Asian markets as well with Chinese indices being traded roughly 0.2% higher this morning. The Japanese NIKKEI (JAP225) closed the week with a 0.4% increase.

During the Asian hours trading we were offered several prints from the Japanese economy which turned out to be rather mixed. First of all, the jobless rate ticked up to 2.4% from 2.3% while the job-to-application ratio slipped to 1.62 from 1.64 while a tiny rise to 1.65 had been forecast. On the face of it, it could look like a deterioration in the labour market, however, keep in mind that the Japanese labour market remains extremely tight hence a single gloomier reading did not change this outlook at all. On the inflation front we got the data from Tokyo for November which is published three weeks before a reading at the country level (it could act as a bellwether). Headline price growth decelerated to 0.8% YoY from 1.5% YoY and missed the median estimate of 1.1% YoY. On the flip side, the two remaining gauges - excluding fresh food, and excluding fresh food plus energy - held unchanged at 1% and 0.6% YoY respectively. The last one is viewed as the super-core gauge which the best presents underlying domestic inflationary pressures - it is far from the BoJ’s desired level to say the least. Last but not least, industrial production produced a healthy rebound rising 4.2% YoY in October and easily beating the consensus of a 2.5% YoY rise. Note that the solid rebound was partly due to the September’s ugly numbers caused by dreadful natural disasters.

By and large, the Japanese yen barely moved on the releases described above but from a technical point of view one may hope for a decrease in the nearest future. Note that the pair failed to break above 114.3 three times - a clear sign of bulls’ fatigue. Source: xStation5

China’s PMI deteriorates further

In turn, from the China’s economy we got manufacturing and non-manufacturing PMIs for November - both disappointed. The official manufacturing PMI decreased to 50 points from 50.2 points seen in October raising tensions ahead of a crucial meeting between Donald Trump and Xi Jinping this weekend in Argentina. The details turned out to be yet uglier. The productions subindex fell to 51.9 from 52 while new orders declined to 50.4 from 50.8. Chinese manufacturers’’ import orders also shrank to 47.1 from 47.6 reflecting a faltering domestic demand. Only new export orders improved but the rise was almost invisible as the index climbed 47 from 46.9 - it still says that manufacturing managers expect a deterioration of this category. The sub-par data could exert some pressure on Beijing to express a more conciliatory stance in negotiations with Washington. Nevertheless, expectations ahead of the G20 summit are pretty low suggesting that any surprise is much more likely to be positive than negative. Finally, a lack of a panic sell-off of Chinese stocks in late trading hours also signals that investors do not seem to be particularly worried. Non-manufacturing PMI marked a decrease too falling to 53.4 from 53.9 remaining deep into an expansion area.

Chinese manufacturing PMI is on the brink of a contraction area reflecting results of trade tensions with the US. Source: Bloomberg

In the other news:

• Australia’s private sector credit rose 4.6% YoY in October, unchanged compared to September

• New Zealand building permits increased 1.5% MoM in October

• China’s passenger car sales shrank 28% YoY in the first three weeks of November

• Canada confirmed it expects to sign the USMCA on Friday