Japan Plans to Double Early Stimulus Predictions

Daily Analysis - 21/07/2016

Size and Dimensions of Projected New Fiscal Stimulus Package Send Yen Lower

Although still unapproved, the Japanese government is preparing a new package of fiscal stimulus expected to be spent on infrastructure, transportation, and shoring up confidence with additional liquidity for companies in the wake of the “Brexit” decision. The Yen slipped on the announcement, giving up ground versus most major peers as markets await Cabinet approval of the new measures.

Japan Prepares to Unleash New Stimulus

After receiving a strong sign of confidence following the upper house election victory, leaks of the newly proposed fiscal stimulus package indicates that the program will number approximately JPY 20 trillion with a tremendous allocation of that program devoted to infrastructure spending. While the measures have not yet been approved by the cabinet, a rubber stamp that is not anticipated before early August, the fiscal stimulus amount matches estimates that were nearer to the higher end of the range anticipated by analysts and economists. Although counteracting the uncertainty that has arisen from the British referendum decision was cited as a major influence for how the plans have evolved, the main purpose of this fiscal package remains domestic, with attention directed towards improving disaster resilience and local transportation systems. The Yen has weakened in response to stimulus expectations, with GBPJPY retreating modestly from intraday highs.

Erdogan Declares a State of Emergency

In addition to the ongoing purge of the judiciary, academics, police and military, Turkish President Erdogan moved to declare a 3-month state of emergency in response to the failed coup d’etat over the weekend. In what is largely viewed as a crackdown on his political opponent Fetullah Gulen and his movement, Erdogan has used the opportunity to crush all dissent against his administration. He has also already taken aim at international financial institutions, criticizing the move by ratings agency S&P to downgrade the sovereign credit rating to BB from BB+ after the investment environment has weakened considerably on the back of the political fallout. However, most scathing of his critiques was towards the European Union, admonishing the political union for its condemnation of his decision-making. The Turkish Lira continues to plummet amid the ongoing turmoil, with the EURTRY pair approaching new record highs amid the Lira losses.

Gasoline Inventories May Precede New Inventory Glut

With Chinese “teapot” refiners flooding international markets with gasoline and other refined products, fears are once again growing that the pace of production outstrips supply by a wide margin. Further evidence of oversupply came from the latest Energy Information Administration weekly inventory report which underlined the growth in gasoline stockpiles, after the number of barrels in storage climbed by 911,000. Despite crude stockpiles falling an additional -2.342 million barrels, production in the United States is once again creeping higher as maintenance concludes in Alaska, reviving output from the state. Imports of crude oil to the US also rose, indicating that producers may be looking to take advantage of remaining onshore storage space in the US to wait out the recent downturn in prices for a longer-term recovery. Oil prices surged higher following the announcement while natural gas prices slipped lower ahead of the EIA Natural Gas Storage Report.

Elon Musk Unveils Latest Tesla Ambitions

Hot on the heels of his successes in revolutionizing the electric automobile, Tesla CEO and founder Elon Musk is taking his ambition to new heights with the introduction of more integrated clean energy solutions and self-driving vehicles. Although plans announced earlier in the year to merge Tesla with SolarCity was widely decried by analysts concerned about the corporate governance issues that might arise from such a move, Musk continues to forge ahead with the idea of providing consumers with power solutions that bypass utilities. Additionally, Tesla plans to forge ahead with a fleet of autonomous trucks and buses designed to cut down on auto fatalities as development of self-driving vehicles takes on a greater role in transportation planning. Although Tesla performance has disappointed, with shares sliding -14.40% over the last 52-weeks, the announcement was met with optimism, sending shares 0.39% higher in after-hours trading to $229.25.