• Bank of Japan cuts to some extent its regular bond purchases, the yen recovers despite disappointing macroeconomic releases
  • NZ business activity improves this month, it still remains vastly depressed though
  • Chinese PMIs run of of steam in February, Asian stocks decline following a bleak day on Wall Street

Looking at the currency market one may notice that the Japanese currency is the sole one strengthening against the greenback in the morning in spite of the fact that there were two disappointing macroeconomic readings from the domestic economy for January. Namely, retail sales grew 1.6% yoy falling short of the consensus at 2.4% yoy and lowering from 3.6% yoy seen at the final month of 2017. Even as the data rarely tends to be a market mover for the JPY or other classes of assets there, it needs to stress that the underlying trend in retail sales continues going nowhere, however, the jury is still out when it comes to predicting consumption growth in the first quarter.

link do file download linkJapanese retail sales grew in the first month, though much less than expected. The figure deserves more attention over the next two months in order to assess consumption growth. Source: Macrobond, XTB Research

Additionally, industrial output picked up 2.7% yoy missing expectations at 5.3% yoy and registering a decrease compared to a 4.4% yoy increase in December. In turn, a month-over-month basis showed the first slid (-6.6%) in four months, albeit it could have been just a one-off event as there are no warning signals suggesting a more severe slowdown in the Japan’s manufacturing. While the data turned out to be sub-par, the BoJ came forward as it purchased less JGBs than it usually buys. The central bank decided to buy bonds for 70 billion JPY of the 25+ year segment compared to 80 billion at the prior operation. The difference seems to not be significant nevertheless it showed that the BoJ tends to slash its purchases from time to time which could be seen as a tiny step toward policy normalization.

link do file download linkThe USDJPY is still hovering below its crucial resistance and until it stays beneath a downtrend resumption seems to be the most likely scenario. Source: xStation5

Apart from the Japanese currency it’s worth mentioning the NZ dollar which was offered the updated business confidence gauge published by ANZ. The index improved in February to -19 from -37.8 but it remained quite a long way off from its normal levels. However, according to the country’s finance minister confidence among businesses should be recovering over the next months as political havoc seems to be already ended. The kiwi is trading flat in early trading but do notice that the price has almost achieved the level we have pointed out lately.

link do file download linkThe New Zealand’s economy witnessed an improvement in the two soft indicators while services PMI deepened its previous falls. Source: Macrobond, XTB Research

Let us also glance at Asian equity markets as they have made quite a dismal day following decreases on Wall Street a day earlier. Moods could have been deteriorated due to an unexpected huge decline in Chinese manufacturing PMI as it slipped from 51.3 to 50.3 while the consensus had forecast 51.1. Non-manufacturing PMI fell from 55.3 to 54.4 as well missing market expectations at 55. All of that combined with falls on Wall Street led to deterioration of investors’ confidence depressing stocks in Asia. At the time of writing the Hang Seng (CHNComp on xStation5) is losing as much as 2.4% and a quick look at the chart below illustrates the price has gone down in line with our forecasts based on a bearish engulfing seen the day before. On top of that, the NIKKEI (JAP225) closed down 1.45% while the major US indices lost a bit more than 1%.

link do file download linkThe Hang Seng is declining after it drew a bearish engulfing at a daily time frame. The first more significant support might be localized at around 11800 points. Source: xStation5