EUR/USD down at 1.3672 from a North American close Friday up around 1.3690. The plight of the euro zone pheriphery countries still very much to the fore, with Ireland resisting pressure from ECB and other euro zone governments to seek a bailout.
Not much in the way of euro zone data today:
07:45 GMT: French current account for September
09:00 GMT: Italian trade for September
10:00 GMT: Euro zone govt debt/gdp ratio
10:00 GMT: Euro zone trade for September
European stockmarkets look set to open lower, FTSE and DAX down around 0.2%, France’s CAC 40 down around 0.5%.
— Japan Industrial Output Posts 4th Drop In Row; Aug -0.5%
TOKYO (MNI) – Japanese industrial production fell 1.6% in September
from August, revised up from a preliminary 1.9% drop but still marking
the fourth straight monthly decline after -0.5% in August, data from the
Ministry of Economy, Trade and Industry Thursday showed.
As the ministry added the food, tobacco and medical sectors that
are not covered in preliminary data, sharp gains in production of food
including alcohol helped trim the drop in the overall output compared
with initially estimated figures.
But as seen in the initial reading, output was dragged down by
lower demand for passenger cars, chassis and auto parts following the
end of the government’s subsidy for buying fuel-efficient vehicles in
July-September industrial production fell a revised 1.8%
(preliminary 1.9%) from the previous quarter after +1.5% in April-June,
marking the first q/q drop in six quarters since -20.0% in Q1 of 2009.
It was down sharply from +7.0% in January-March 2010 and +5.9% in the
final quarter of 2009.
Last month METI reported its survey of firms’ forecasts, which
showed that production will drop by 3.6% m/m in October — revised down
from the 2.9% decline estimated in the previous month’s survey — before
rebounding by 1.7% in November (first estimate).
With automakers now feeling the pinch from dwindling domestic
demand, METI downgraded last month its assessment for the second
consecutive month, saying: “Industrial production appears to have
Industries that are expected to show a decline in October output
are transport equipment and electronic parts and devices as well as
information and communication electronics equipment. A rebound in output
of general machinery, electronic parts and devices as well as
transportation equipment is forecast to lead the gain in November.
Automakers, which carry a heavy weighting in the index, are scaling
back their production amid concerns that demand will shrink in the
coming months since the government ended its subsidy program in
New vehicle sales in Japan fell 26.7% from a year earlier to
193,258 units in October, the second consecutive y/y fall, which was the
first y/y drop in 14 months, data released by the Japan Automobile
Dealers Association showed this month.
In September, output of transportation equipment fell a revised
3.8% m/m (preliminary -4.2%), posting a fifth-straight monthly decline,
while production of electronic parts and devices declined by a revised
4.9% (initially -5.0%), the fourth consecutive month of drops.
Until June’s decline, output had gained every month since March
2009 except for the 0.6% drop in February this year. The sharp 1.1%
decline in June was seen at the time as a temporary blip, due in part to
distorted seasonal adjustments caused by the Lehman shock of 2008.
Production had generally improved from the sharp plunge seen from
late 2008 through early 2009. It rose a record +4.6% m/m in May 2009.
Compared with the year earlier level, production in September this
year rose a revised 11.5% y/y (preliminary +11.1%), following +15.1% in
August. It has recovered from the record 38.6% drop in February 2009.
The 6.4% rise in December 2009 was the first y/y gain in 15 months.
Other details from the latest data:
Shipments: Sept revised -0.5% m/m (preliminary -0.7%) vs. Aug -0.8%
m/m, posting the third straight m/m fall and the fifth drop this year.
The drop was led by decreases in transport equipment, electric equipment
such as air conditioners as well as iron and steel.
Inventories: Sept revised +0.1% m/m (preliminary +0.2%) vs. Aug
+0.8% m/m, marking the second straight monthly rise and the seventh gain
this year. The rise in inventories was led by increases in electronic
parts and devices, iron and steel as well as transportation equipment.
The inventory-to-shipments ratio: Sept +1.3% m/m, unchanged from
preliminary reading vs. Aug -0.7% m/m, the first rise in two months.
The capacity utilization index: September -1.1% m/m at a seasonally
adjusted 87.3 (vs. 100 = 2005 average) vs. Aug -0.9%.
** Market News International Tokyo Newsroom: 81-3-5403-4835 **
- Japanese Q3 GDP +0.9% QoQ
- South Korea confirm that they are working on new capital control measures- USD/Asia spikes higher
- NZ retail sales +0.7% QoQ
- Fed’s Lacker thought risks of QE2 outweighed the benefits
- Germany pushes Ireland to accept bail-out and avoid contagion spreading to Portugal and Spain
- Stock markets -0.5% after early gains
- Oil and Gold give up early gains to finish session flat
Most of the action has been in the emerging markets with the majors staying relatively calm.
EUR/USD closed in NY at 1.3685, fell firstly in early interbank trade as the market anticipated a negative reaction to weekend Irish news but this fall was quickly corrected. The next move was higher, up to 1.3750 on heavy EUR/JPY short-covering. The sharp rally in USD/Asia in the afternoon saw these gains reversed and EUR/USD finishes the session little changed. Ranges: EUR/USD 1.3664/1.3750, EUR/CHF 1.3395/1.3432
USD/JPY has been moderately well bid all session long, firstly bolstered by EUR/JPY buying and then also by USD/Asia demand. Stops lie close by above 82.80 but Japanese corporate selling has been steady near the highs. Ranges: USD/JPY 82.40/76, EUR/JPY 112.84/113.64
AUD/USD has been fairly quiet after the excesses of Friday in a .9824/99 range.
Sterling and Swiss have similarly followed the leads from the EUR in the main. Cable range: 1.6102/53
Markets: Nikkei +0.6%; HK -0.7%; Seoul -0.3%; Shanghai -0.6%. Gold $1368/oz, Crude $86.50/bbl.
— Adds Economist Comments, Background From 24th Paragraph
TOKYO (MNI) – Japan’s economy expanded for the fourth straight
quarter in the July-September period, with the pace of growth
accelerating from the second quarter, due largely to strong private
consumption, the Cabinet Office said on Monday.
Gross domestic product grew 0.9% in the July-September period from
the previous quarter, or at an annualized pace of 3.9%, up from a
revised +0.4% q/q and +1.8% annualized in the second quarter (revised
from +0.4% q/q and +1.5% annualized).
Q3 growth was above the median forecast for a 0.6%
quarter-on-quarter rise, or an annualized gain of 2.5%, in a Market News
survey of economists. The forecasts ranged from 0.5% to 1.1% q/q rise,
or at an annualized pace of 1.9% to 4.5%.
The rise in Q3 growth was due entirely to stronger domestic demand,
while net exports were flat on the quarter.
Q3 domestic demand rose 1.0% q/q after a revised 0.1% gain in the
second quarter. Domestic demand added 0.9 percentage point to Q3 GDP, up
from a 0.1 point contribution in the second quarter.
Within domestic demand, growth in private consumption, which makes
up about 60% of GDP, surged 1.1% q/q in Q3, well above the 0.1% gain in
Q2, contributing 0.7 percentage point to Q3 GDP (vs. no contribution in
Capital spending rose for the fourth straight quarter but growth
decelerated to 0.8% in Q3 from +1.8% in Q2. Capex contributed 0.1
percentage point to Q3 GDP (vs. +0.2 point in Q2).
Inventory changes added 0.1 percentage point in Q3 after pushing
down overall growth by 0.1 percentage point in the second quarter.
Housing construction rose 1.3% in the third quarter, after falling
0.8% q/q in Q2. Still, this category made no net contribution to Q3 GDP.
Net exports made no contribution to Q3 GDP after adding 0.3
percentage point in Q2.
Exports were up 2.4% on quarter, the sixth consecutive quarterly
gain, slowing from +5.6% in the previous quarter, while imports rose
2.7% q/q, marking the fifth consecutive quarterly increase (also slowing
from +4.0% in Q2).
From a year earlier, Q3 GDP rose 4.4%, the third straight y/y rise,
after rising 2.7% in Q2.
In nominal terms, Q3 GDP expanded by 0.7%, or an annualized 2.9%,
up for the first time in two quarters.
Deflation accelerated in the third quarter, the GDP data showed.
The GDP deflator was down 2.0% from a year earlier after falling
1.8% in the second quarter. And the domestic demand GDP deflator fell
1.2%, compared with a 0.7% fall the quarter before.
Market focus has shifted to how much Japan’s economy will weaken in
the fourth quarter.
Private economists expect October-December GDP to contract
quarter-on-quarter, due to a payback for high durable goods spending in
the previous quarter.
The Bank of Japan said in its semi-annual Outlook Report released
on Oct. 28 that the board revised down its fiscal 2010 real GDP
forecast to +2.1% from its July projection of +2.6% due to weaker
overseas demand, the fading effects of fiscal stimulus, and the recent
appreciation of the yen.
The board’s median GDP forecast for fiscal 2011 is little changed
at +1.8% vs. the +1.9% forecast in July.
But for fiscal 2012, GDP is forecast to rebound slightly to +2.1%,
well above Japan’s potential growth rate estimated by the BOJ to be
The potential growth estimate was unchanged from that provided in
The BOJ said on Oct. 28 that “Japan’s economy still shows signs of
a moderate recovery, but the recovery seems to be pausing.”
The BOJ also said that Japan’s economy is likely to grow at a
slower pace for some time, but that it is expected to return to a
moderate recovery path thereafter as the growth rate of the global
economy is likely to start increasing again led by emerging and
Economists said the July-September GDP came in stronger than
expected mainly because personal consumption was higher than the average
forecast, thanks to rush buying of cars and tobaccos, and record high
temperatures which buoyed consumption in the summer.
The Q3 consumption rose 1.1% q/q, above the average market forecast
of a 0.9% gain.
Of the domestic final consumption expenditure of households (+1.1%
q/q, +4.6% annualized), durable goods spending surged by 11.1% q/q, or
an annualized 52.5%, the first q/q growth in two quarters after -1.6% in
April-June. Consumer durable goods spending contributed 0.6 point to Q3
GDP, or two-thirds of total growth for the quarter.
The rise was consumer durable spending was led by car purchases, as
consumers rushed to dealerships before the government ended its subsidy
program for buying low-emission vehicles in September. At the same time,
the government’s reward program for purchases of greener consumer
electronics continued to support sales of TVs and air conditioners,
particularly amid record high temperatures triggered by heat waves.
Spending on non-durable goods rose 0.6% q/q in Q3 vs. +0.5% in Q2,
reflecting unusually high demand for cigarettes before the tobacco tax
hike that took place Oct. 1
The outlook for the fiscal 2010 GDP growth of 2.1%, presented by
the Bank of Japan, is expected to be met with ease. The Cabinet Office
said even if GDP contracted 0.9% q/q in both the fourth quarter and
the first quarter of 2011, the GDP for fiscal 2010 would grow 2.1%.
But Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset
Management, said: “It is very difficult to forecast the fiscal 2010 GDP
at present as the Cabinet Office will implement an overall review of the
past GDP figures in December.”
Economists expect October-December GDP to contract in a payback
for the Q3 rush buying. Yoshimasa Maruyama, economist at Itochu Corp,
forecast the Q4 GDP will fall an annualized 2%.
Although economists see a contraction in the Q4 GDP, they do not
expect Japan’s economy to plunge into a recession.
Takumori said the expected plunge in Q4 consumption should not
continue in early 2011, and that the basic capital investment trend
remains solid. Still, the negative impact of the strong yen is a
concern, he added.
Ample funds created by monetary easing among developed economies
will flow into developing and resource-rich nations and support their
growth, which in turn will help raise Japan’s GDP growth, he said.
Maruyama forecast Q1 2011 GDP will increase an annualized 1% due to
the positive impact of the government’s fiscal 2010 supplementary budget
and lingering high growth in Asia.
The stronger-than-expected reading of Japan’s third quarter real
GDP means that the Japanese economy now has to brace for a downturn in
the current quarter, Hirokata Kusaba, senior economist at Mizuho
Research Institute said.
“Given challenging wage and labor market conditions, spending on
durable goods can’t stay strong without tax incentives,” he said.
Kusaba also noted that exports are also poised to drop in the
October-December quarter, thereby raising the likelihood of an overall
growth contraction in the current quarter.
“But exports to Asia are likely to move out of the current downturn
as early as the January-March quarter, helping Japan avoid two
consecutive quarters of a contraction,” he said.
** Market News International Tokyo Newsroom: 81-3-5403-4833 **
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