From Marc Chandler at Bannockburn Global Forex:
Overview: There has been a string of disappointing economic news today. Japan's economy surprisingly contracted in Q4 23 and the Q3 contraction was a little deeper than initially estimates. Australia's jobs growth was weaker than expected and unemployment rose to 4.1%, matching the highest since November 2021. The UK's economy contracted more than expected in Q4 23, its second consecutive quarter without growth. That seems like poor news ahead of today's two byelections. The reaction in the foreign exchange market is just as surprising as the data. The yen strengthened, and the dollar briefly traded below JPY150. The Australian dollar dipped but recovered. On the other hand, sterling is languishing and is the only G10 currency that is trading lower today in the European morning. Emerging market currencies are more mixed. Most currencies in central Europe are lower, while the South African rand, a few Asian currencies, and the Mexican peso are a little firmer.
Asia Pacific equities were higher after the US equity market gains yesterday. The main exception was South Korea's Kospi. Taiwan led the rally with favorable news from the chip space, and the Taiex rose by 3%. The Nikkei gapped higher to new multiyear highs. Europe's Stoxx 600 is up a little more than 0.5% to set new high for the year. US index futures are trading firm ahead of a slew of data before the session begins. Benchmark 10-year yields tumbled in the Asia Pacific region, playing a bit of catch-up, while European yields are 1-3 bp lower. The 10-year US Treasury yield is off about three basis points to 4.22%, which puts it up about five basis points this week. Gold reached almost $1984 yesterday, a two-month low, but has steadied today, though still below $2000. April WTI recorded a bearish outside day yesterday and rising US inventories and worries about weak demand are pushing back to the week's low set Monday near $75.50.
Asia Pacific
In an unexpected development, Japan's economy shrank for the second consecutive quarter in Q4 23. The 0.4% contraction quarter-over-quarter stands in stark contrast to the median forecast in Bloomberg's survey that anticipated 1.1% expansion after contracting by 0.8% in Q3 (revised from -0.7%). Consumption and business investment contracted again. Consider the backdrop, the fiscal support (~5% budget deficit last year), the monetary support, including negative policy rate and negative real interest rates, the weak yen. Policy would seem to facilitate growth. Yet, one is also reminded that Japan's population has been falling for 14 years and any growth itself is remarkable. There are two key questions. If the economy is contracting with such policy settings, what will it take? With the national core inflation rate likely to follow Tokyo's and move below target, will BOJ Governor Ueda's plans to exit the negative policy rate be disrupted? New tax cuts at the start of the new fiscal year and the spring wage round are important (as we already knew). Ueda's plan to raise rates has not met opposition from the political or business circles. This seems unlikely to changed that. Negative real rates are where the economic stimulus arises. Even at zero (and the effective rate is already at -0.005% rather than at the target of -0.10%), overnight target rate must be regarded as stimulative. It seems more like a technocratic approach than an economic judgement....
....MUCH MORE
And now come U.S. retails sales with everything having been pulled forward into 2023.
