Japanese Inflation Edges Higher

Daily Analysis - 03/03/2017

Core CPI Prints in Positive Territory for the First Time Since 2015

japanese-inflation


In a sign that the extensive measures undertaken by the Bank of Japan are starting to boost prices across the country, the latest headline and core annualized consumer inflation indices managed to keep climbing and even print in positive territory in the case of the core figure.

Japan Inflation Surprises to the Upside


Even though the headline inflation figure managed to match expectations of 0.40% annualized growth through the end of January, the real news for the consumer price readings overnight were the gains in core inflation.  The measure, which traditionally strips away the more volatile food and energy components rose by 0.10%, beating estimates of 0.00% and the prior month’s reading of -0.20%.

This latest print marked the first positive reading since December of 2015, driven primarily by an improvement in prices for transportation, communication, clothing, and recreation.  Adding to the resounding positivity of the inflation figures was a modest improvement in unemployment which fell from 3.10% to 3.00% during January.

However, the slide in household spending could bode poorly for inflation down the road after declining -1.20% year over year.

After rising the last four sessions, USDJPY is facing a pullback in momentum, trending towards 114.000.

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Euro Area Inflation Climbs to Highest Point Since 2012


An advance reading of annualized inflation reported by Eurostat showed that Euro Area fundamentals continued to progress on the backdrop of highly accommodative monetary policy measures.  On a headline basis, consumer prices climbed by 2.00% through the year ended in February, driven primarily by the rebound in energy costs during the period.

Food, alcohol, and tobacco where the secondary drivers of the gains in the headline figure, rising 2.50% during the same period.  However, the core figure which is the more widely monitored data by central bank officials remained on hold at 0.90%.  Although the headline figure may lead to the ECB rethinking the extensiveness and length of asset purchase measures, it will likely be conditional on core inflation trending higher over the coming months.

Despite sliding on Thursday, EURUSD has managed a gradual rebound overnight, retaking the 1.0500 level.

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Fourth Quarter Canadian GDP Growth Decelerates


After roundly benefiting from the rebound in oil and gas prices during the second half of 2016, Canadian expansion came in lower during the final three months of 2016, printing at 0.60% compared to the 0.90% reported during the third quarter.  For the whole of 2016, growth in economic activity came in at 1.40%, beating the 0.90% increase recorded back in 2015.

Helping buoy GDP growth was positive household spending traction, rising durable goods investment, and better trade fundamentals.  Though imports fell by 3.50% for the period, exports rose by a modest 0.30%, helping spur a better surplus.

Alongside gradual improvements in inflation and unemployment, sustained GDP growth may help the Bank of Canada gradually tighten policy after holding rates firm at 0.50% during the latest decision.

Nonetheless, the positive GDP reading was not enough to lift the Canadian dollar, with USDCAD reaching the highest point since early January.

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Chinese Services Expansion Slips to Four Month Low


Following the positive readings on manufacturing delivered earlier in the week, the Purchasing Managers’ Index for the Chinese sector disappointed financial markets after missing the consensus estimate of analysts.  For February, the Caixin Services PMI reported by Markit Economics fell to 52.6 compared to expectations of 53.3 after printing at 53.1 in January.

Although still well above the 50.0 threshold which marks the dividing line between growth and contraction, the figure underscores slowing domestic demand and potentially indicates a plateau after extending the retreat from the more than one year highs reached back in December.

New business growth was flat with the only positivity in the PMI coming from better employment and a growing backlog of work for the period.

After consolidating the last few months, USDCNH has made a break to the upside, extending gains past the 6.9000 level overnight.

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