- Japanese machine orders post fourth month of growth
- Chinese data highlights deterioration across firms and consumer spending
- European CPI figures set to dominate quiet European session
European markets are looking at a lot more of a rosy picture today, as markets finally digest yesterday’s dovish BoE and look forward to Eurozone CPI figures. This is following a strong overnight session in Asia, where the Nikkei yet again outshone its competitors following a strong machine orders number. As such, the European markets are looking to open higher, with the FTSE 100 +20, CAC 40 +22 and DAX +40 points.
Overnight trading has been dominated by Japanese and Chinese data, with Japan in particular taking the headlines as a machines order figure came in above expectations by posting a positive figure of 2.9%. This represents the fourth consecutive positive month on month figure, a feat that hasn’t been managed for over 15 years. With the impact of the sales tax having had an impact upon investment back earlier in the year, there is no doubt that the economy is back firing on all cylinders which could provide Shinzo Abe with the indication that another sales tax could be implemented without any long lasting ill effects to the economy.
Perhaps it is this strength which has given Shinzo Abe the confidence to call a snap election for December which appears to be increasingly likely. The risky move comes halfway into his current term and would provide Abe with the opportunity to gain a broader mandate to push through somewhat unpopular security legislation later next year. Markets are increasingly expecting Abe to delay the next sales tax hike as a resolute, just to gain political leverage for Decembers vote.
Chinese data painted a different picture overnight, with industrial production, retail sales and fixed asset investment all falling in October. Unfortunately this is not a one off instance, but more a long term trend which has been in place since the Chinese economy seemed to peak out in 2010. With a heightened awareness that the Chinese economy is seeking to move away from investment and towards consumption, it could be argued that that shift could explain the fall of investment and production, yet with retail sales also falling the picture is one of lowered economic activity across both individuals and firms alike.
The European session looks set to be dominated by the release of final CPI readings across a range of Eurozone economies. For the most part, traders will gladly tell you exactly where the Eurozone headline CPI figure is, yet no one really cares about the level of inflation across each of the constituent countries. That is because monetary policy is set by the ECB who acts for the group as a whole.
However, with Mario Draghi’s recent announcement of an ABS scheme, came opposition from the Bank of France Governor Cristian Noyer and Bundesbank President Jens Weidmann who represent two of the most important people when it comes to national monetary interests in the Eurozone. With both economies running a higher rate of CPI than the ECB at the time, it was clear that there is more room for them to make such calls, relying upon the idea that the threat of deflation is somehow less likely for their own countries.
Nonetheless, we have since seen a gradual deterioration across both countries and the continuation of this would likely mean a diminished degree of opposition to ECB easing in the future. Thus with French CPI now resting at 0.4% and the German number at 0.8%, any move lower would surely lead to a softening of their respective stance as the need for stimulus to gain traction in prices is increasingly needed.
DISCLAIMER: Any views or opinions presented are solely those of the author and do not necessarily represent those of Alpari (UK) Limited, unless otherwise specifically stated. This content does not constitute investment advice.