Macro Morning: Abenomics gets a lift

morning1211

It could be a big day for markets in Asia today given the resounding victory of the ruling LDP Party of Japanese Prime Minister Shinzo Abe in Upper House elections over the weekend. For the first time in 6 years, and since Abe left the office of PM the last time, both Houses will be controlled by the LDP and its partners. The win is not unexpected because for all its beggar thy neighbour flaws Abenomics has given the Japanese a relative sugar hit.

Citi Japanese Economic Surprise IndexJust check out the chart at right which is the Citibank Japanese Economic Surprise Index. This index measures the “surprise” in the data against what the market or punditry expected. As you can see the data has been much better than expected over the past few months and I would also note now that some of the data has actually been outright good for an economy that has been in the doldrums for so long.

Indeed the G20 Communique seems to have given succour to Abe’s self interested policies no doubt taking the line that a stronger Japan is better than a weak Japan at a time that China is going down the internal rebalance path itself. The G20 said:

There are signs of strengthening activity in the U.S. and Japan…

Monetary policy should be directed toward domestic price stability and continue to support economic recovery according to the respective mandates of central banks.

Tick? It’s ok for the Japanese to target 2% inflation. The G20 also noted that they were mindful of unintended consequence but in a swipe at China and a reinforcement of the Japanese position the G20 said:

We are determined to accelerate progress toward rebalancing global demand, including internal rebalancing through structural reforms. This requires surplus economies to boost domestic sources of growth and deficit economies to increase national savings and enhance competitiveness. We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments.

So the Nikkei is likely to get a lift and the USDJPY should try to break a little higher this week.

jpy, usdjpy, yen, dollar yen (jpy) price quote

While above 0.9980 dollar/yen is biased toward 103.30/60

In other FX markets the Aussie closed kind of weak on Saturday morning dropping 30 points into the close of New York trading. I’m not exactly sure if it was just position squaring or something different because it has happened each Saturday morning for the past month or so. Anyway it is still early doors in Asia this morning and the Aussie is trading at 0.9177 up 8 pips from the 69 close.

Of import to the Aussie this week is going to be the CPI data released on Wednesday. Readers know I think the RBA should cut rates given the economic backdrop particularly given household restraint and the business outlook and I think that the CPI on Wednesday is likely to reinforce that they have room to cut as soon as next week if they want to. So Wednesday is a big day for the Aussie but as you can see in the chart below it remains in its box. We’ll trade inside until we see a break either way.

aud, audusd, australian dollar, australian dollar price quote, audusd 4 hour

Looking elsewhere the euro remains mid range for the last week at 1.3135, GBP has pushed up though and if it breaks through 1.5303 it should be off and running. Looks like EURGBP is going to be a good short from here targeting 0.8497 initially and then 0.8394.

On the stock market one of my systems was stopped into a long on the S&P 500 at week’s end. It’s a marginal high and not supported by the Dow or other bourses around the globe but a system is a system.

Anyway at the close the S&P 500 was up 3 points or 0.16% to 1692, the Dow was down 5 points which is essentially flat at 15,544 and Nasdaq fell under the weight of tech stocks like Microsoft which fell 12% (another reason I trade FX not individual stocks) to close down 0.64% at 3558.

In Europe the FTSE was flat, as were the CAC and DAX, Milanese stocks rose 0.44% and in Madrid stocks fell 0.18%.

Gold is back up near $1300 and Nymex crude has closed the gap on Brent and sits well atop $108 and may be headed to $114 Bbl.

Data

Its really just a bit of US data with the release of the Chicago Fed national activity index and existing home sales.

 Twitter: Greg McKenna