- Japan takes the hit from the tax hike
- February PMIs the first check on the virus impact
- US output shrinks again
Asia – tax hike burden weighs on the Japanese economy
The Japanese have awful experience with the sales tax. Each time they raised it, some economic misfortune occurred and we’re not discussing here an obvious negative reaction among households. Japan introduced the tax in 1989, just months before the economy and stock market crashed. Then they raised it for the first time in 1997 (Asian crisis), 2014 (year before the mini-crisis in China) and October 2019. Shinzo Abe had been warned about the timing of the recent cut and it looks like it couldn’t have been worse. Not only the economy contracted heavily in Q4 (-1.6% q/q) as the business activity was already weak but now the virus impact may prevent any recovery. Moving to China, new severe limitations for the Hubei province suggest that the issue is far from being resolved and the economic impact might actually be more serious.
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GDP contraction in Japan would have been even worse if not the government spending. Source: Macrobond, XTB Research
Key economic event this week: PMI in Japan (Friday, 0:30 am GMT)
Europe – awaiting the key data
There has hardly been a positive data report from Europe recently and ALL these reports reflect a period before the virus impact. Therefore investors should be concerned ahead of the series on PMIs this Friday. The consensus shows only a minor reversal after a period of modest recovery which only confirms that economists do not know what to expect. Markets look as if investors didn’t care – DE30 is at the all-time highs despite the poor streak of data and uncertainty regarding the virus impact.
Confidence or ignorance? DE30 is at the all-time highs despite weak data from Europe. Source: xStation5
Key economic event this week: Flash PMI reports for February (Friday)
US – industry disappoints again
The recent winning streak of the US dollar reflects a dismal economic situation outside of the US more than a success of the US economy where the data has been mixed. The key release last week, January retail sales report, was just a notch weaker than expected but industrial production declined for the 4th time over the past 5 months. Similarly to the situation in Europe, the hard data hasn’t confirmed the improvement signaled by the business activity surveys (PMIs and ISM) but one may argue that it has some 1-2 more months to catch up. We will see…
Is the pick-up in ISM a sign of reversal for the US economy? Source: Macrobond, XTB Research
Key economic event this week: FOMC minutes (Wednesday 7pm GMT)
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