Abe’s honeymoon is over. Following nearly two years of having free reign to crush the Japanese economy with his idiotic monetary and fiscal policies – but, but the Nikkei is up – the market may have finally pulled its head out of its, well, sand, and after last night’s abysmal economic data  from Japan which saw not only the highest (cost-push) inflation rate since 1982, in everything but wages (hence, zero demand-pull) – after wages dropped for 23 consecutive months, disposable income imploded – but a total collapse in household spending, the USDJPY appears to have finally been dislodged from its rigged resting place just around 102. As a result the 50 pip overnight drop to 101.4 was the biggest drop in over a month. And since the Nikkei is nothing but the USDJPY (same for the S&P), Japan stocks tumbled 1.4%, their biggest drop in weeks, as suddenly the days of the grand Keynesian ninja out of Tokyo appear numbered. Unless Nomura manages to stabilize USDJPY and push it higher, look for the USDJPY to slide back to double digits in the coming weeks.
European equities sit in minor positive territory, as core indices look to trim some of the losses of the week, but remain down 1.0-1.5% lower since Monday’s open. The periphery is slightly outperforming the core, as a series of positive broker moves for small- and mid-cap stocks lifts the FTSE-MIB and IBEX-35. Financials are faring better than yesterday’s poor performance, as the weight in Barclays and Standard Chartered after yesterday’s sell-off abates
The tone in overnight markets is soft with weakness across credit and equities. In equities, there is a clear risk-off tone led by the HSCEI (-0.8%). In credit, the Australian and Asian IG indices are quoted around 3bp wider and Chinese USD investment grade bonds are trading more than 5bp wider. USD weakness is a major theme in Asia as the impact of Bullard’s comments and US personal spending data washes through Asia. USDJPY is down 0.4%, taking the Nikkei (-1.05%) down with it. The other beneficiaries of the stronger dollar are KRW (+0.26%), MYR (+0.3%) and the AUD (+0.25%). Japan reported May CPI today (+3.7% YoY) which was in line with market consensus, but is the highest level since 1991. Adding to the weak sentiment, Bloomberg reports that another Chinese property developer (Yuehue) is facing funding pressure and has halted construction at one of its mixed use developments in Shanghai.
Commodities are mixed with natural gas, platinum outperforming, while gold, silver decline. French, German bond yields rise.
The only thing on the US docket is the UMich confidence index – the third confidence reading of the week, which we expect to track the Conference Board and soar, while ignoring the Gallup print, which had confidence tumble to the lowest in 2014. After all, if one is manipulating and fabricating economic “data”, may as well go all in.
Market Wrap
- S&P 500 futures down 0.2% to 1944.9
- Stoxx 600 up 0.1% to 342.1
- US 10Yr yield down 1bps to 2.52%
- German 10Yr yield up 1bps to 1.25%
- MSCI Asia Pacific down 0.3% to 145.1
- Gold spot down 0.1% to $1315.1/oz
Bulletin headline summary from Bloomberg and Ransquawk
- Treasuries gain, 10Y and 30Y yields headed for biggest weekly declines since five days ended May 16 amid increasing Middle East violence and concern over Ukraine, weaker than forecast U.S. economic data.
- The Fed is finally succeeding in their efforts to generate higher inflation. Now they must do the same for wages to prevent U.S. households from getting squeezed
- Japan’s consumer prices climbed at the fastest pace in 32 years, boosted by higher utility charges and a sales-tax increase that contributed to the biggest slide in household spending since the March 2011 earthquake
- U.K. Prime Minister David Cameron sharpened his attacks on Jean-Claude Juncker as unsuitable to run the EC, mounting a final push to convince fellow leaders in Europe to halt the former Luxembourg premier’s appointment
- Spain will increase cash advances to regions by almost EUR3.9b, will create a tax on bank deposits, Budget Minister Cristobal Montoro told reporters in Madrid
- U.S. Secretary of State John Kerry’s Mideast trip this week has been a lesson in the limits of U.S. power as Iraq PM Maliki rejected calls to step aside and the president of the semi-autonomous Kurdistan region told CNN that the time may have come to break with Baghdad and pursue independence
- About 50,000 Christians have fled from towns near Mosul in the past two days, amid fighting in the region between Iraqi security forces and an al-Qaeda splinter group, the city’s senior cleric saidÂ
- Obama asked Congress to approve $500m to arm and train“appropriately vetted elements of the moderate Syrian armed opposition†as the administration seeks to rein in the al-Qaeda splinter group whose fight has spilled into Iraq
- The wave of children showing up on the U.S. southern border has caught Obama between his allies who want him to do more on immigration and critics who blame him for causing the sudden surge
- A cease-fire called by Ukraine’s government in its fight against rebels in the east expires today, as European Union leaders prepare to sign a pact tying Ukraine closer to the bloc with President Petro Poroshenko
- North Korean leader Kim Jong Un oversaw the test firing of new “ultra-precision†guided missiles, according to the official Korean Central News Agency
- Sovereign yields mixed. EU peripheral spreads wider. Asian stocks mostly lower, European stocks gain. U.S. stock futures decline. WTI crude unchanged, gold falls, copper rises
