Morning comment: Japan & Aussie business surveys, German trade

Emily Nicol
Chris Scicluna

Overview:
Technology stocks weighed on the US equity market on Monday, with the Nasdaq eventually closing down 0.7%. However, a rally in consumer staples and real estate saw the S&P500 erase an initial 0.8% decline to close virtually unchanged on the day. After being closed through Monday’s session, US Treasuries resumed trading in Asia today with the 10-year yield nudging up 1bp to a new high of 3.24%.

With that background, after slumping more than 4% on Monday, China’s CSI300 has steadied somewhat today with the CSI300 posting a more modest drop of 0.3%. Bourses in Hong Kong and Taiwan posted very modest gains. However, after being closed on Monday, Japan’s TOPIX has fallen 1.8% as investors reacted to Friday’s decline on Wall Street and a risk-aversion driven rebound in the yen. Despite a solid business survey, Australia’s ASX200 followed Monday’s 1.4% loss with a further decline of 1.0%. 

Japan: 
The Cabinet Office Economy Watchers survey for September, released this morning, indicates that underlying conditions in the Japanese economy were perceived to have been very similar to August – an outcome that was better than the market had expected in light of the powerful typhoon and earthquake experienced near the beginning of the month. After rebounding to a four-month high that month, the overall current conditions index fell just 0.1pts to 48.6 in September. The household sector index fell 0.3pts to 47.1 and the business sector index fell 0.3pts to 50.5 (a 2.0pt decline in the manufacturing index to 48.1 was partly offset by a 0.7pt rise in the non-manufacturing index to an eight-month high of 52.3). By contrast, the employment index rose 1.7pts to a six-month high of 54.0. Looking forward, the overall expectations index – which tries to gauge the direction of conditions over the next month or so – fell a similarly negligible 0.1pts to 51.3. While the household sector index fell 0.4pts to 50.8 and the employment index fell 0.2pts to 52.5, more encouragingly the business sector index rose 0.7pts to 52.1 – the best reading since January.

In other news, Japan recorded a seasonally-adjusted current account surplus of ¥1.43tn in August, which was slightly below market expectations and down marginally from ¥1.48tn last month. The goods and services balance recorded a negligible deficit of ¥0.06tn, with the current account surplus more than explained by a surplus on the primary income balance of ¥1.71tn. The secondary income balance, which captures transfers, recorded a deficit of ¥0.22tn. 

Euro area:
Following yesterday’s weak German manufacturing data – output in the sector fell 0.1%M/M in August following a decline of 1.9%M/M previously to leave the average for the first two months of Q3 tracking more than 1½% below the Q2 average – today’s German trade data for the same month were disappointing too. Indeed, contrary to the expected rise, export values fell for the second successive month too, again by 0.1%M/M following a decline of 0.8%M/M in July. But, particularly striking, German imports plunged a hefty 2.7%M/M, all but reversing the rise the previous month. As a result, on a seasonally adjusted basis the trade surplus rebounded €2.4bn from July’s more-than four-year low to €18.3bn, still however tracking well below the Q2 average close to €20bn. So, while the volume data have yet to be released, and factory orders from abroad (particularly from outside the euro area) picked up in August, at face value net trade appears likely to have acted as a drag on German GDP growth for the third consecutive quarter in Q3. 

UK:
Having stepped up their spending during the spring and summer heatwave, British households appear to have become more circumspect about their outlays heading into the autumn – perhaps unsurprising as Brexit uncertainties loom ever larger. According to the BRC retail survey, released overnight, total spending on the High Street rose 0.7%Y/Y in September, the softest rate of increase since last October excluding the dip in April related to the timing of Easter this year. On a like-for-like basis, sales appeared weaker still, down 0.2%Y/Y, again the second weakest since October 2017. Within the detail, sales remained boosted by a relatively firm trend in food sales, up 2.3%3M/Y on a like-for-like basis. But non-food sales were down a hefty 1.6%3M/Y on the same basis, suggesting a diminished willingness to make non-essential purchases.

This morning will also see the release of the minutes from the BoE’s latest Financial Policy Committee (FPC) meeting, held on 3 October.

US:
In the US, today will bring the NFIB small business optimism index for September.

Australia:
The domestic focus in Australia today was on the release the NAB Business Survey for September. The closely-watched business conditions index printed at +15 – up 1pt from August which was revised down 1pt from its initial reading. In broad terms the index has tracked sideways over the past five months at a level that remains more than double the long-run average. In the detail, the trading index nudged down 1pt to +17. However, the employment index rose 3pts to a 5-month high of +12 – well above the average for the survey. The headline business confidence index rose 1pt to +6, which is about in line with its long-run average i.e. respondents remain more positive about their own situation than about the economy in general. Finally, it is also worth noting that firms reported that their output prices rose just 0.4% over the past three months – a result that would suggest inflation outcomes beneath the RBA’s annual CPI target range of 2-3%Y/Y.

In other news, ahead of tomorrow’s monthly Westpac consumer confidence reading, the weekly ANZ-Roy Morgan index declined 0.8pts to 117.3, thus remaining within the narrow band seen over the past couple of months or so.

New Zealand:
The ANZ Heavy Traffic Truckometer – a measure of traffic flows that is correlated with economic activity – fell 2.7%M/M in September. As a result, annual growth in the 3-month average slowed to a solid 5.2%Y/Y. This suggests that the economy remains in decent shape, albeit with the likelihood that Q3 GDP growth will prove much weaker than the surprising 1.0%Q/Q outcome registered in Q2.

In other news, the Government reported an audited fiscal operating surplus of NZD4.07bn in FY17/18 – NZD2.39bn larger than had been estimated when the FY18/19 Budget was released in May. Almost half of the variation was due to lower-than-expected spending (some of it due to timing changes) while the remainder was due to a stronger-than-expected tax flows and accounting adjustments. Net debt declined to a seven-year low of 19.9% of GDP from 21.7% of GDP in the previous year.

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