Very mixed data from Japan overnight

March 29, 2016

FX News Today

Very mixed data from Japan overnight:  Household spending exceeded expectations at 1.2% (-1.8% expected) however, the  Unemployment rate inched up to 3.3% from 3.2% and Retail Sales also missed significantly coming in at 0.5% against expectations of 1.6%. Prime Minister Abe assured markets that he will proceed with the scheduled tax hike next year (since the first one went so well) unless Japan is hit by a Lehman crisis-scale shock of 2008 or an earthquake on the scale of 2011’s. He’s also not thinking at all about dissolving the Lower House and calling snap elections. A majority of analysts still expect Abe to delay the proposed sales tax hike to 10% from 8% slated for April of next year. USDJPY trading higher at 113.40.

US Reported a weak Q1 consumption:  The February personal income report halved  Q1 “real’ consumption growth forecast to 1.8% from 3.6%, and trimmed Q1 GDP growth forecast to 1.0% from 1.4%. There was also a small widening in the February goods trade deficit to $62.9 bln, though there was big February export and import gains that mostly reversed outsized declines in January to leave a better Q1 outlook for global trade. The bad news for spending was partly offset by a big Dallas Fed bounce to -13.6 from -31.8 with an ISM-adjusted rise to 47.6 from 44.4, alongside a 3.5% February pending home sales rise that’s consistent with comfortable housing sector gains into the Spring home sales season.

Fed Policy Outlook: The already slim chance for an April rate hike was lowered further by the disappointing income report. The sluggish Q1 growth outlook, along with the failure for PCE to edge closer to the FOMC’s 2% target, should keep the Fed sidelined until at least June. Comments from several Fed officials last week, including several doves, all of whom reminded that April was in play, increased worries that the Fed could pull the trigger next month. But that seems highly unlikely now, and Fed funds futures are creeping higher again too. The implied May contract points to a 0.390% rate, only fractionally higher than the current 0.375% target mid-point.

Main Macro Events Today

US Consumer Confidence

March consumer confidence is out later and should reveal a 94.0 (median 93.7) headline, up from 92.2 in February. Already released measures of confidence for the month spell out the potential for downside risk to the headline. The Michigan Sentiment report revealed a decline to 90.0 from 91.7 in the first release and the IBD/TIPP Poll fell to 46.8 from 47.8 in February.

Fed Chair Yellen Speech

Due to deliver a speech titled “Economic Outlook and Monetary Policy” at the Economic Club of New York luncheon. All eyes on the speech as traditional Doves on the FOMC have become more hawkish in recent pronouncements.

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