European Equities Rally On Data Ahead of ECB Meeting, Japanese Equities Higher After Sales Tax Hike Delay Expected To Be Announced This Week, ASX SPI200 Futures Down 7 Points

European equity markets were higher on Monday following data that showed improving economic confidence and a halt to German CPI declines. The DAX30 advanced 0.46% as did the CAC40 (+0.32%) and Euro Stoxx50 (+0.37%) while UK markets were closed for a bank holiday, the Euro gained +0.21% against the US Dollar. French GDP data (YoY Q1) increased to 1.4% from 1.3%, German CPI (MoM & YoY) rose 0.3% & 0.1% against previous readings of -0.4% & -0.1% respectively while a gauge of Euro-zone economic confidence from the European Commission also increased in May to 104.7 from 104 in April. This will provide some much needed positive news for European Central Bank President Mario Draghi in his attempt to stimulate Euro-zone growth and inflation. Looking ahead this week we also have key data including Euro-zone unemployment & CPI out tonight prior to the ECB meeting on Thursday where the bank may have the rare opportunity to actually increase its inflation forecasts if we see further positive data tonight. Current forecasts from the ECB suggest the Euro-zone GDP will grow 1.4% in 2016 and 1.7% in 2017 with inflation of 0.1% and 1.3% respectively, the ECB has revised its forecasts lower each of the previous three quarters. While we are certainly seeing some positive signs recently, core inflation and wage growth in the Euro-zone remains weak with many economists projecting that the ECB will add further stimulus later this year by either extending the current quantitative easing program or cutting rates further into negative territory.

Japanese equities were a stand out performer during the Asian session on Monday following better than expected Retail Trade data (YoY) April which showed a decline of 0.7% against expectations of a 1.2% decrease. We also heard comments from a government aide that Prime Minister Shinzo Abe will announce the delay of the planned sale tax hike from 8% to 10% as early as this week. The Nikkei225 index gained 1.39% while the Yen fell 0.73% against the US Dollar and the recent 5.27% decline over the past month shown on the chart below will certainly provide some comfort to policy makers who have been stressing the negative impact of a stronger Yen. While delaying the sales tax will reduce Japans ability to reign it its enormous government debt, currently sitting around 229% of GDP, it would certainly provide the bullish case for Japanese equities and help boost internal consumer demand, which declined when the tax was increased from 5% to 8% back in April 2014. Longer-term Japan needs to address structural reforms to ensure they have a robust labour market and address a clear problem with not only an ageing population, but declining population growth as well.

Locally the ASX200 gained 2.11 points (+0.04%) on Monday to close at 5,408.02. Meanwhile ASX SPI200 futures are down 7 points in overnight trading suggesting a slightly weaker open this morning. If you’re interested in trading global markets but aren’t ready for the risk, click here to open a free $100,000 Rivkin Trader account.

Data releases:

·         Japanese Jobless Rate, Household Spending and Industrial Production (YoY Apr) 9:30am AEST

·         Australian Building Approvals & Private Sector Credit (YoY Apr) 11:30am AEST

·         Japanese Small Business Confidence (May) and Construction orders (YoY Apr) 3:00pm AEST

·         German Retail Sales (YoY Apr) 4:00pm AEST

·         German Unemployment (MoM May) 5:55pm AEST

·         Euro-Zone Unemployment (MoM May) 7:00pm AEST

·         Euro-Zone CPI & Core CPI (YoY May) 7:00pm AEST

·         Canadian GDP (MoM & YoY Mar) 10:30pm AEST

·         US Personal Consumption Expenditure (MoM & YoY Apr) 10:30pm AEST

·         US Consumer Confidence (MoM May) 12:00am AEST


Source: Rivkin, E-Signal, Amibroker

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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