Japanese Inflation Stays Positive

Analisi Giornaliera - 27/02/2015

Japanese Inflation Trends Toward Target Despite Slip in Consumer Spending

Overnight data from Japan was mixed as the collapse in consumer spending was offset by strong inflation data and expanding industrial production. The Bank of Japan continues to maintain its unconventional monetary easing program in an effort to keep the Yen weak and exports strong.

Consumer Spending Rips Lower

Much of the recovery touted by the Japanese Administration seems to be in distress as inflation continues to outpace growth in the nation. Although inflation is well within striking distance of the goal set by the Bank of Japan, the result has seen real incomes decline and purchasing power eroded. The latest rise in unemployment from 3.2% to 3.4% also hearkens to the deterioration in consumer spending which is slowing the flow of money through the Japanese economy. While unemployment remains notably restrained, the reality is a society that has many of the youngest workers in part-time positions whilst the older population stays employed for longer. A weaker Yen has naturally helped exports as evidenced by the gains in industrial production, but the tradeoff has been weakened domestic consumption.


U.S. Inflation Prints Negative

Even though it was mentioned during Federal Reserve Chairwoman Janet Yellen’s testimony to congress, year over year inflation slipped into negative territory, printing at -0.10%. Although the core number was notably higher, coming in at 1.60%, this does not negate a deflationary data point as energy and food costs drag on inflation. These factors, specifically energy are regarding as transitory, energy prices could remain depressed for some time and leads to the belief that further weakness is around the corner for the U.S. economy. GDP data to be released later in the day will likely confirm the slowdown in economic growth with preliminary expectations for quarterly GDP at 2.10% versus 2.60% in the prior period. Exacerbating the slowdown in future readings will be the shutdown of the West Coast ports which will see the flow of goods through the economy decelerate.


Eurozone Votes on Greece

Today marks the vote of the latest Greek bailout package as Eurogroup Finance Ministers take the proposal to their domestic constituencies for approval. Already there has been strong opposition to the measure as evidenced by dissension within German Chancellor Angela Merkel’s own CDU party. Making matters worse for Greece was the announcement of a record amount of bank outflows in January as the country seeks funds to repay next month’s debt obligations. At over €7 billion, repayments are likely to fall short as the country runs out of cash with government tax revenues missing expectations and no imminent disbursement of funds available to the government. Without assistance from creditors, Greece is likely to default on certain loans, possibly to the IMF which could lead to the imposition of more draconian austerity measures.


EURGBP Equidistant Channel Technical Setup

The pitfalls of the latest Greek deal are giving investors cause for concern as today’s looming votes will decide the fate of the besieged nation. The Euro sold off broadly against peers yesterday as lingering fears of a default make it back to center stage. By comparison, the U.K. economy is in much more stable condition as evidenced by yesterday’s GDP print which met expectations of 2.70% annualized expansion. Any further decline in Greek fundamentals is likely to send the Euro tumbling lower. The downward trending equidistant channel technical setup in EURGBP looks to continue over the near-term as the divergence in economic conditions between the Eurozone and the U.K. deepens. Strategy dictates that short positions are taken at the upper channel line and closed out at the bottom. Long positions should be avoided as any trend fighting will lead to worsened risk-reward attributes.


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