Japan’s GDP Grows for Seventh Straight Quarter

Daily Analysis - 15/11/2017

Yen Rallies to 2-Week High Amid Sustained Economic Advance

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The Japanese economy expanded at a 1.40% annualized pace during the third quarter, topping a median Reuters estimate of 1.30% growth while the revision higher of the prior figure also contributed to increased optimism towards the outlook. The Yen climbed following the release of data, sending the USDJPY pair to a three-week trough of 113.030.

Haven Demand Boosts the Yen


Japan's economy brushed aside a consumer spending dip during the three months to September to post its longest run of uninterrupted growth since an eight-quarter stretch from the second quarter of 1999 until the first quarter of 2001. Although business spending remained in positive territory, albeit at a more sluggish pace, the real surprise came from the dip in consumption which was attributed to bad weather.  The latest strength in expansionary figures should embolden the Bank of Japan to maintain its current easy monetary policy framework, given the argument that inflationary pressures will seep into the economy if growth remains on track.  Apart from the overnight GDP reading, the Japanese Yen is benefitting from a dip in market risk sentiment after tumbling crude oil prices took their toll on Wall Street. Investors are seeking the relative safety of the currency ahead of the much-anticipated US consumer inflation data due later.

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Steady UK Inflation Catches Bank of England Off-Guard


British inflation unexpectedly remained steady at its highest level in over five years in October, leaving the Bank of England red-faced and raising question marks about how quickly the bank could follow-up on this month’s interest rate hike. When the BoE lifted rates for the first time in a decade in early November, it forecast inflation to hit 3.20% in October. However, figures from the Office for National Statistics showed the annual rate of consumer price inflation stayed flat last month, mirroring September’s 3.00% print. Economists surveyed by Reuters had anticipated a 3.10% annual rise, with the main drivers keeping the rate elevated credited to rising food and housing, and utility costs.  Sterling slipped to its lowest in close to four weeks against the Euro on Tuesday as the lower-than-expected inflation number weakened the case for the BoE to increase rates again soon.

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Services Buoy US Producer Prices


US producer price inflation rose more than expected in October, propelled by a jump in the cost of services while contributing to the biggest annualized rise in wholesale inflation in more than five-and-half years. The Labor Department’s Producer Price Index for final demand edged 0.40% higher last month following a similar pace of increase in September. That lifted the year-over-year gain in the PPI to 2.80%, the higher figure since February of 2012. Prices for services climbed 0.50% in October from September, amid a 25.00% leap in margins for fuels and lubricants. Economists polled by Reuters had forecast the PPI nudging up by 0.10% on a monthly basis and advancing 2.40% from a year ago. Excluding food, energy, and trade services, producer prices rose 0.20% in October, gaining the same margin for three consecutive months. Dow futures finished lower on Tuesday, with the benchmark sliding to just over 23300 in early Wednesday trade.

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Copper Feels China Slowdown Heat


Copper was among the most notable losers of Tuesday after a slew of weaker-than-expected macroeconomic data points from the metal’s top consumer raised demand concerns. Official Chinese figures unveiled earlier in the week revealed softer industrial output growth in October while fixed-asset investment expansion also slowed. Often considered a bellwether commodity, copper is considered a strong leading indicator of global economic conditions. The industrial metal has soared close to 25.00% this year alone, primarily supported by strong demand from China, which accounts for nearly half of the world's copper consumption. With the traditionally weak winter demand season approaching, prices could retreat further as the market continues to grapple with tighter credit conditions in China and a slowdown in the property market. After a steep tumble on Tuesday, Copper futures have extended losses, falling to the lowest point in over a month.

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