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Japan Manufacturing Sector Expands In May - Markit
he manufacturing sector in Japan swung back to expansion in May, according to Thursday's preliminary survey from Markit Economics - which showed a PMI score of 50.9. That beat forecasts for a score of 50.3, and it was up from 49.9 in April. It also moves back above the boom-or-bust line of 50 that separates expansion from contraction. Among the individual components of the survey, the output index jumped to 51.7 from 49.3 in April, while production also rose at a moderate pace. Operating conditions improved slightly, the data showed.
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Boj Is expected to Leave Monetary Policy steady Today
The Bank of Japan is expected to leave monetary policy steady today. Going forward, the BoJ has set the hurdle very high for easier policy and it is noted that political pressure is also abating. "We suggest that an imminent policy shift is even less likely than the consensus view amongst analysts" says RBC Capital Markets. Earlier in the week, the Nikkei reported that the BOJ is considering raising its economic assessment in its MPS. If so, it would be the first upgrade in almost two years.
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New Zealand April Trade Surplus NZ$123 Million
New Zealand posted a merchandise trade surplus of NZ$123 million in April, Statistics New Zealand said on Tuesday - representing 3.0 percent of exports. The headline figure beat forecasts for a surplus of NZ$98 million following the NZ$631 million surplus in March. Exports were down NZ$240 million or 5.5 percent on year to NZ$4.17 billion versus forecasts for NZ$4.27 billion and down from NZ$4.93 billion in the previous month. Milk powder, butter, and cheese exports led the fall, down 27 percent (NZ$323 million) from April 2014, due to lower quantities for whole milk powder and lower prices overall. However, the quantity of dairy products exported rose 1.2 percent overall, led by whey, cheese, and butter. This offset the fall in whole milk powder quantity. "The value of whole milk powder we sent to China in April 2015 was a fifth of the April 2014 value," international statistics manager Jason Attewell said. "Volumes were a third of what they were in April 2014, and lower prices made up the rest of the fall in value." Other significant commodity group changes were fruit exports, up NZ$62 million, and crude oil exports, down NZ$63 million from April 2014. Imports added an annual 2.6 percent or NZ$104 million to NZ$4.04 billion versus expectations for NZ$4.12 billion and down from NZ$4.30 billion a month earlier. The increase was led by transport equipment (aircraft and parts). Consumption goods rose NZ$54 million, led by food and beverages. For the year ended April 2015, the annual trade deficit was NZ$2.6 billion. This is the largest annual trade deficit since the year ended June 2009 (NZ$3.1 billion).
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Boc to Maintaining Its Overnight Lending Rate at 0.75%
The Bank of Canada (BoC) will release its post-meeting statement at 10:00 ET on 27 May. There is no press conference. The overnight lending rate is expected to be unchanged at 0.75%, in line with all analysts polled by Bloomberg. Standard Chartered says they have recently revised their BoC rate call to 'unchanged' until 2017 from previously expecting two further rate cuts. While recent data has been mixed, the BoC sees better prospects ahead. The BoC continues to expect the January rate cut to have stimulated activity, while it sees green shoots in non-oil exports and investment, along with a boost from US growth. It also sings the praises of a resilient labour market and elevated entrepreneurship; it believes in the economy's continued progress in rebalancing away from the commodity sector. This optimistic tone was on display in Governor Poloz' 19 May speech. The BoC's 27 May statement will continue on this wavelength: while noting recent weaker data, it should still emphasise the better outlook. It should continue to point to "full capacity" being reached by end-2016. "The signal therefore will be that rates are firmly on hold for now, in our view. We expect rates to be on hold until at least 2017", says Standard Chartered.
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Japan Core Inflation Likely remained 0%; Ip may have edged Up
Japan will release key April economic data on 29 April, including core inflation, industrial production (IP), and job data. Core inflation is expected to have dropped to 0.0% y/y in April from 2.2% in March as the base effect due to the April 2014 sales tax hike has started to wane. A 2% inflation target remains a distant goal for the Bank of Japan, and it is believed that the bank needs to ease still further in H2-2015. IP likely rebounded by 1.0% m/m in April after declining for two straight months. Q1 GDP showed better-than-expected investment readings, which may imply a gradual pickup in business activity. "We expect the unemployment rate to have stabilised at 3.5% in April, with the job-to-applicant ratio rising to 1.16 from 1.15 prior", says Standard Chartered.
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Us Second Q1 Gdp Print may be a Painful Reminder of Data Weakness
US data has mostly disappointed so far this year, with relatively broad-based weakness. Against widespread expectations of an acceleration early in the year, private consumption has remained lacklustre, despite the c.USD 800/household annual windfall from lower gasoline prices. Retail sales have undershot the market consensus for five straight months. As a result of widespread data disappointment, including on payrolls, the US surprise indices have continued to slide down. The Bloomberg surprise index is the lowest since the global financial crisis. The second Q1 GDP data release (Friday, 08:30 ET) may be a painful reminder of the poor start to the year. "We forecast a downward revision to -0.9% q/q SAAR (consensus: -0.8%), from 0.2% in the first print and 2.2% in Q4-2015",says Standard Chartered. This revision would be mostly on lower inventories and net trade, while private consumption could be raised slightly (although to a still-meagre 2.0% q/q SAAR). This could fuel debate about 'residual seasonality' in Q1 GDP data, which some San Francisco Fed researchers have recently discussed in their 18 May note, and that the statistics agency said it would tackle when updated data is released in late July.
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Us Non-Farm Payrolls Likely to rise in May
Next week is a big US data week, with non-farm payrolls, the ISM manufacturing survey, April personal consumption expenditure and inflation data. Regional business surveys have remained mixed lately, and the ISM manufacturing survey is expected to have been stable at 51.5, suggesting still-meagre industrial activity growth (services should continue to do most of the heavy lifting near-term). Standard Chartered notes: We forecast April core PCE inflation - the Fed's preferred measure - to have remained at 1.3% y/y. We think the labour market remained resilient despite recent weaker US data, and we forecast a US payroll gain of 240,000, a touch more than the 223,000 gain in April. Our optimism is supported by recent services surveys showing still-healthy employment intentions, and initial jobless claims touching 15-year lows. We see the unemployment rate staying at 5.4%. This should keep the Fed on track to raise rates later this year (our long-held view is that September's meeting is the most likely time).
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Canadian dollar hits 1-1/2 month trough against US dollar
The Canadian dollar surpassed a sharp retreat versus the US dollar Monday, affected by oil prices that slid on speculations OPEC production levels will remain elevated. US crude prices went up 0.05% at $60.33, but Brent crude erased 0.84% to $65.01. The 2nd quarter will be better… We all need to see numerous figures before we are 100% “convinced that core assumption is correct,” said Greg Anderson, Global Head of Foreign Exchange Strategy at BMO Capital Markets. The loonie closed at 79.78 US cents from Fri's 80.41 US cents. On Friday, the Organization of the Petroleum Exporting Countries (OPEC) will hold its semiannual meeting, which is awaited to retain production at high levels.
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Moody's: the French Market Shows That Bank Disintermediation Is a Viable Way Forward for European Sme Clos
In the context of increasing bank disintermediation in Europe, GIAC Gestion SAS' recent cash flow CLO transaction is an example of a viable way forward for European SME CLOs, says Moody's Investors Service in a new report published today. "FCT GIAC Obligations Long Terme II (GIAC OLT II) illustrates how securitisation can finance SMEs and mid-caps without the direct involvement of an originating bank and its unique features ensure the alignment of interests between the manager, investors and obligors," observes Monica Curti, a Moody's Vice President -- Senior Analyst and author of the report. The securitisation has unique features compared with standardised European collateralised loan obligations (CLOs) and granular SME securitisations. It uses its low cost of funding to provide cheaper financing to SMEs and mid-caps while providing strong protection against adverse portfolio selection. Compared to European BSL CLOs 2.0. the structure has additional challenges, relating to the assets securitised and structural features such as the long two-year ramp-up period. "GIAC Gestion's transactions have performed in line with expectations, despite the recession in France" Ms Curti notes. Defaults indeed remained limited during the credit crunch and often resulted from the fact that French banks decided to cut financing to companies (i.e., on banking loans originated outside of GIAC's transactions). This shows that SME financing remains linked to the banking system, albeit indirectly. The new report: "The French Market Shows That Bank Disintermediation Is a Viable Way Forward for European SME CLOs," is available on www.moodys.com. GIAC OLT II is a securitisation of bonds from French small and medium-sized enterprises (SMEs) and from companies with higher market capitalisation (mid-caps).
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US dollar slides as ECB retains policy, Bund yields extend gain
The US dollar touched its weakest level versus the euro in more than two weeks Wednesday, following the European Central Bank retained its monetary policy amidst recent market volatility and as Bund yields prolonged its advance. ECB President Mario Draghi said the central bank kept interest rates and saw no reason to modify the policy stance. Draghi's remarks confirms the eurozone “was moving in the right direction,” said Eric Viloria, Currency Strategist at Wells Fargo Securities. Also, the benchmark 10-year Bund yields reached 0.89%, the highest since October 2014. The dollar closed at $1.12695 per euro following it hit $1.2855. Against the Japanese yen and Swiss franc, the greenback was at ¥124.300 and 0.93480 franc, respectivel
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