Japanese economy watchers more downbeat

Emily Nicol

US inflation key focus this week – headline inflation expected to ease, but core CPI rate to be higher
The key economic focus in the US this week will be Wednesday’s July CPI report. While energy prices have eased back over the past month, food prices have shown no signs of slowing. As such, our colleagues in Daiwa America expect consumer prices to have risen 0.3%M/M in July, a touch above the Bloomberg survey consensus, but nevertheless down from increases of 1%M/M or more in the previous two months. So the annual CPI rate is forecast to have eased back below 9%Y/Y. But with underlying price pressures continuing to broaden, prices of core items are expected to have risen a firmer 0.5%M/M, to leave the annual core rate up 0.2ppt to 6.1%Y/Y. PPI data for the same month are due on Thursday, with the latest University of Michigan consumer sentiment survey on Friday. The latest productivity figures for Q2 will also be watched tomorrow.

Japanese economy watchers much more downbeat about conditions at the start of Q3
Today’s Japanese economy watchers survey signalled a marked deterioration in conditions at the start of the third quarter. In particular, the headline current conditions diffusion index fell more than 9pts in July to a five-month low of 43.8, well below the key 50-improving mark and below the long-run average. While the weakness was broad based, the DI relating to household demand for food and drink fell a whopping 31.2pts to 30.8, with respondents citing concerns about higher prices, while the services DI fell 16.8pts to 30.8. Meanwhile, the manufacturing DI (44.1) fell to its lowest since August 2020. And economy watchers expect a further weakening in economic momentum over the coming three months too, with the outlook DI down almost 5pts to 42.8. The only other domestic release of note will be Wednesday’s goods PPI figures for July – the annual rate of producer price inflation is expected to have fallen 0.8ppt to 8.4%Y/Y on the back of softer energy prices. Japanese markets are closed on Thursday for the Mountain Day holiday.

Chinese trade surplus hits a series high in July due to stronger exports; inflation likely to show underlying price pressures remain relatively subdued
Despite the disappointing manufacturing PMIs that had signalled a steeper decline in external demand at the start of Q3, the latest Chinese trade figures published over the weekend were more encouraging, with the value of exports rising a stronger than expected 18.0%Y/Y. So, with imports up a more modest 2.3%Y/Y, the trade surplus jumped in July to $101.3bn, the highest since the series began in 1987. Later this week will bring July inflation figures on Wednesday. While headline CPI inflation is forecast to increase 0.4ppt to 2.9%YY, the highest since April 2020, it would remain low by international standards. And with food price inflation set to play a notable role, core inflation will likely remain more subdued. PPI inflation figures are also expected to show the headline annual rate falling to below 5%Y/Y for the first time since March 2021.

UK GDP likely to confirm the economy contracted in Q2 as household budgets squeezed
The main event in the UK will be Friday’s release of the preliminary estimate of GDP in Q2, as well as the monthly GDP, production and trade figures for June. We currently forecast a sizeable decline in growth in GDP in June of 1.1%M/M to leave total economic output down 0.1%Q/Q in Q2 following an increase of 0.8%Q/Q in Q1, with household consumption and business investment likely to have contracted. This compares with the BoE staff estimate of GDP growth of -0.2%Q/Q. Not least given sizable revisions to the monthly data over recent months and the additional bank holiday in June, there is greater uncertainty surrounding the growth forecast last quarter.

Euro area sentix survey to flag increasing downside risks; IP likely remain subdued in June
It should be a relatively quiet week ahead for top-tier euro area data, kicking off this morning with the Sentix investor confidence survey for August, which is likely to signal a further deterioration in expectations having fallen in July to their lowest since the global financial crisis. The week ends with the release of aggregate euro area industrial production figures for June. Based on the member states that have already published data we expect to see only very modest growth that month, likely less than ½%M/M. The often volatile Irish IP figures (due tomorrow) will provide further guidance. The second half of the week will also bring updated and more detailed July inflation figures from the four largest member states – German and Italian figures on Wednesday followed by French and Spanish data on Friday.

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.