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Japanese Economy Rebounds

Daily Analysis - 31/03/2017

Factory Output Rises as Jobless Rate Falls to Two Decade Low

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In another sign that green shoots are emerging in the Japanese economy, factory output grew at its fastest pace in eight months, while the jobless rate fell to a 22-year low in February per figures released earlier. The latest data provides fresh signs that a rebound in overseas demand continues to boost the country's export-reliant economy.

Pickup in Japanese Economic Activity Fails to Offset Inflation Concerns


In a steep turnaround compared to January’s results, Japanese industrial output rose 2.00% last month, easily topping market forecasts of a 1.20% gain.

Separately, Japan's jobless rate hit a 22-year trough of 2.80% in February, a 0.20% dip from the previous month.

However, consumer inflation, excluding the effect of rising energy costs, increased a mere 0.10% from a year earlier, underscoring the challenges facing the Bank of Japan as it attempts to trigger sustain price gains.

Household spending dropped -3.80% in February from the same period a year ago, versus expectations of a -1.70% contraction. The decrease in household spending is reflective of a tightening labor market, which in turn has failed to drive wages high enough to boost domestic consumption.

USDJPY is down in early Friday trade, and was last seen around 111.800.

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UK Consumers Remain Glum


With British shoppers concerned about their financial situation as well as the country’s economic outlook in the wake of uncertain “Brexit negotiations,” a leading survey showed that UK Consumer Confidence remained unchanged in March on a month-on-month basis.

The GFK consumer confidence index, which is a widely-followed measure of consumers’ future expectations of personal finances and the general economic condition, stood at -6 for March. Though flat from February, the index fell a point compared to January. Separately, the Lloyds Business Barometer, a key gauge of confidence among British companies, fell by -5.00% to 35.00%.

Nonetheless, the Pound was unfazed by the weaker than expected data points, slipping modestly in early trade after gaining ground versus the US dollar on Thursday.

However, FTSE June futures continue to tick lower and were last seen just above the important support at 7260.

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China Factory Activity Reaches 5-Year High


An official measure of Chinese factory activity edged upwards to the highest point since April of 2012 in March, adding to evidence that growth momentum is accelerating in the world's second largest economy.

The official National Bureau of Statistics’ Manufacturing Purchasing Managers' Index rose to 51.8 in March compared to the 51.6 reported back in February. The 50-point mark separates growth from contraction. Analysts surveyed by Reuters had forecast a current month reading of 51.6.

The Chinese economy, which has been worryingly drifting downward for years, stabilized through the middle of last year, bolstered by increased government spending on infrastructure and a credit-propelled property boom.

Economists cite a rise in prices of factory goods and improving global demand as the primary reasons for the latest uptick in the PMI figure.

Despite the improved data, the Yuan remains under pressure, with USDCNH extending the prior session’s gains.

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South Africa Keeps Rates Steady


South Africa's Central Bank left its benchmark repurchase rate steady at 7.00%, in-line with expectations while underlining the re-emergence of exchange rate risks amid the increase in domestic political uncertainty.

The Rand tumbled earlier in the week on President Jacob Zuma's plan to dismiss Finance Minister Pravin Grodhan. Central Bank Governor Lesetja Kganyago said that while inflation and growth prospects had improved, and the Central Bank had reached the end of its tightening cycle, the sharp drop in the currency posed a risk.

The Central Bank had cumulatively raised rates by 200 basis points since early 2014. Most economists believe that given the institution's dovish tone following the latest monetary policy meet, the odds of a rate cut later this year have been greatly reduced.

USDZAR is soaring in early Friday trade, and is currently hovering around 13.4500.

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