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Japan consumption strengths, but outlook uncertain

Emily Nicol
Chris Scicluna
  • Japan’s consumption activity jumped ahead of October’s tax hike, but the near-term outlook remains downbeat with the government downgrading its assessment of conditions to ‘worsening’. A week dominated by European manufacturing releases got off to a weak start with German orders suggesting the adverse trend in the sector continues. And politics and geopolitics seems likely to be to the fore this week, with the US/Chinese trade and UK/EU Brexit negotiators set to continue discussions.

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Services PMIs signalling subdued conditions

Emily Nicol
Chris Scicluna
  • There were no surprises from Japan’s final services PMIs which suggested steady growth in activity at the end of Q3, but pointed to weakness ahead. Much focus will be on the US non-manufacturing ISM later today in light of the disappointing manufacturing survey earlier this week,  and the European PMI surveys seem likely to point to very weak conditions at the turn of the quarter.

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Japan consumers increasingly downbeat

Emily Nicol
Chris Scicluna
  • Japanese consumer confidence maintained its relentless negative trend while firms’ inflation expectations remained subdued. In Europe, all eyes will be on Boris Johnson’s new Brexit proposals, which nevertheless seem bound to be unacceptable to the EU and highly incompatible with the notion of frictionless trade to-boot.

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Tankan no game-changer for BoJ

Chris Scicluna
Emily Nicol
  • Japanese equities posted modest gains as the all-important BoJ Tankan was not as bad as feared. And given the BoJ's reduced JGB purchase intentions and the weakest demand at the 10Y auction since 2016, JGBs made notable losses across the curve. In contrast, Aussie bonds made substative gains after the RBA cut rates and left the door open to more easing ahead. 

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Retail rebound in Germany & Japan

Emily Nicol
Chris Scicluna
  • A week full of top-tier economic data brought some positive surprises, including from PMIs from China and retail sales from Germany and – ahead of tomorrow’s consumption tax hike – Japan.

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