GDP growth: Japanese joy, European gloom

Wrap up - last week

GDP growth: Japanese joy, European gloom

• Continuing the upward momentum, most key equity markets made strong gains but again it was Japan that stole the limelight with a 3.6% rise for the week. Weaker eurozone data led investors to anticipate further monetary easing measures from the European Central Bank, driving the German 10-year bund yield lower (prices higher). Conversely, Japanese and US 10-year government bond yields rose. The US dollar reached a four-year high against the yen, and the gold price fell 4.2% during the week owing to US dollar strength.
• The round-up of US economic indicators included better-than-expected retail sales figures – up 0.1% in April against predictions of a 0.3% fall; improving consumer confidence – a six-year high in May’s release; and slowing inflation – which fell to a two-year low in April. Debate intensified over how long the US Federal Reserve (the Fed) will continue to support the markets; the President of the Federal Reserve Bank of Philadelphia suggested that the Fed should taper its asset purchases this year. As many analysts expected, the euro area economy contracted by 0.2% quarter-on-quarter (qoq) in the first quarter of 2013. Germany disappointed with anaemic GDP (gross domestic product) growth of only 0.1% qoq while France slipped into recession, shrinking by 0.2%. Eurozone inflation for April slowed to 1.2% yoy but European car sales in April rose for the first time in 19 months as demand grew in Germany and Spain.
• In Japan, preliminary government data showed that first quarter real GDP increased 0.9%, or 3.5% in annualised terms, bettering the 2.7% rise predicted by analysts. Also lifting market sentiment was news that Japanese consumer confidence improved for the fourth month in a row.
  
  

Shaping the markets – this week

Shanghai Surprise: will there be improvement for China’s manufacturing sector?

• US investors will look to the April existing home sales report (Wednesday), for further signs of the robustness of US housing; a similar rise to March’s 4.92m monthly sales is expected. Additionally, the new home sales report (Thursday) may show a rise of 425,000 according to market consensus. The Federal Open Market Committee meeting minutes (Wednesday) could shed more light on the debates surrounding the inflation outlook and the pace of the Fed’s asset purchases. Durable goods orders for April (Friday) could take on a much more upbeat tone; analysts are expecting a rise of 1.7% month-on-month (mom) compared with a 5.8% fall in March.

• Key European data releases include the May initial purchasing managers indices (PMIs) for France and Germany and the euro area (Thursday), which will probably show continued weakness in both manufacturing and services sector activity. Eurozone consumer confidence for May (also Thursday) is unlikely to show a significant change (-22.3 in April). At the end of the week, the second estimate of Germany’s Q1 GDP (first estimate +0.1%, qoq) may confirm that the weak performance was driven from falling investment. Germany’s IFO business climate survey may also support the downbeat outlook. Elsewhere, UK consumer prices index (CPI) inflation (Tuesday) could potentially slow further owing to lower food and petrol prices. The second estimate of UK Q1 GDP (Thursday) is also scheduled.
• Finally, in Asia, it is hoped that Japanese exports for April (Tuesday) will build on recent strength (+1.1% year-on-year in March). Over in China, the health of the manufacturing sector is gauged with the release of the May HSBC Flash Manufacturing PMI (Wednesday); the April reading came in at 50.4, signalling only a slight improvement in manufacturing activity.