We're starting the week with a risk on session in Asia.
Singapore's EWS the star performer, +1.74% on the day. Strong.
Europe looking to open on the front foot...
Japan's Nikkei is recovering well from Friday's selloff, hitting 23370 before paring gains. Currently up 1.3% on the day.
The Nikkei had dipped on Friday after Prime Minister Shinzo Abe’s resignation stirred doubts about future fiscal and monetary stimulus policies.
Those concerns were eased somewhat by news Chief Cabinet Secretary Yoshihide Suga, and a close ally of Abe, would join the race to succeed his boss.
A slimmed-down leadership contest is likely around Sept. 13 to 15.
Yoshihide Suga, Chief Cabinet Secretary to Abe, would be expected to extend the fiscal and monetary stimulus that defined Abe’s term in government.
News that Birthday Boy Buffett's Berkshire Hathaway (say it 10 times fast) has acquired more than 5% stakes in each of the five leading Japanese trading companies was also supportive.
Sticking with Japan, and the overnight data.
Factory activity is up, but retail sales are down
Ministry of Economy, Trade and Industry (METI) data showed Japan’s industrial output grew 8.0% in July from the previous month, versus economists’ median estimate of a 5.8% gain and following a 1.9% increase in June.
Manufacturers surveyed by METI expect output to increase 4.0% in August and grow 1.9% in September
Compared with a year earlier, output was down 16.1%.
Highlighting weak consumer demand, however, retail sales fell 2.8% year-on-year in July, worse than a 1.7% drop seen by economists in a Reuters poll and following a 1.3% drop in June, separate METI data showed on Monday.
Declines in car demand dragged down overall retail sales, and department stores and supermarkets suffered from sluggish consumer activity amid a surge in new COVID-19 cases.
Clothing demand also suffered, while oil product sales fell reflecting declines in crude oil prices, the data showed.
On a seasonally-adjusted basis, retail sales fell 3.3% month-on-month in July, posting the first drop in three months.
The official manufacturing Purchasing Manager’s Index (PMI) fell slightly to 51 in August from 51.1 in July, data from the National Bureau of Statistics showed on Monday. It remained above the 50-point mark that separates growth from contraction on a monthly basis.
China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy, as pent-up demand, stimulus-driven infrastructure expansion and surprisingly resilient exports propel a recovery, but the recovery remains uneven.
A sub-index for the activity of small firms stood, however, at 47.7 in August, down from July’s 48.6, with over half of them reporting a lack of market demand and more than 40% of them reporting financial strains, Zhao Qinghe, a senior statistician with the NBS, said in a separate statement.
“In addition, some companies in Chongqing and Sichuan reported an impact from the heavy rains and floods, resulting in a prolonged procurement cycle for raw materials, reduced orders and a pullback in factory production.”
The official PMI, which largely focuses on big and state-owned firms, also showed the sub-index for new export orders stood at 49.1 in August, improving from 48.4 a month earlier and suggesting a bottoming out in the contractionary trend after COVID hit.
“The growth engine is now clear. Overseas demand will only pick up slowly and travel restrictions will only be relaxed if COVID-19 cases subside overseas.
Until then China will rely more on its own for economic growth,” said Iris Pang, Greater China chief economist at ING.
Economic indicators ranging from trade to producer prices all suggest a further pick up in the industrial sector. Profits at China’s industrial firms last month grew at the fastest pace since June 2018, data showed on Thursday.
Activity in the construction sector, a powerful domestic growth driver, also eased in August, likely due to the floods in Southern China. But analysts are confident that as the torrential rains recede, Beijing’s infrastructure push - on the back of accommodative policies - would further bolster growth.
The official non-manufacturing PMI, which includes services and construction sectors, rose to 55.2 from 54.2 in July, the NBS survey showed.
Investment bank HSBC expects China’s economy would grow by 5.4% in the third quarter year-on-year, followed by a 6.2% expansion in the fourth quarter, returning China’s growth to pre-COVID levels.
Capital Economics senior China economist Julian Evans-Pritchard said the services sector uptick suggested an encouraging broadening out of the recovery.
“This is consistent with our view that an investment-led rebound would eventually also shore up consumer sentiment and household spending, keeping the overall economic recovery on track.”
European inflation data the focus this morning.
Spain & Italy due at 08.00 & 10:00 respectively.
Germany's regional CPI's will filter through this morning, before the overall German CPI figure is released at 13:00.
This afternoon, Clarida adds his thoughts to the new Fed framework.
Although it is bank holiday in the UK, it is officially month end today so we may see some more fixing flows too.