Q4 data has been patchy, with Germany and China especially concerning.
Japanese data released Monday shows GDP growth at -1.6% QoQ. Recession is probable and ING call 2020 GDP growth at -1.1%.
What is especially worrying is that the data does not yet reflect the impact of the coronavirus and the effects could be significant. Looking ahead there is the potential for much more economic upset and the Olympic Games in Japan could be cancelled.
US markets are closed on Monday for President’s Day, but there is still plenty to keep traders busy. Probably the main concern continues to be the coronavirus outbreak and the weekend newsflow on this matter has been mixed. On one hand, the spread appears to have slowed in Hubei province and the number of new cases within China is the lowest since 23 January. On the other hand, the statistics are disturbing: the total number of cases exceeded 71,000 on Monday. Deaths in China have climbed to 1,770, with five fatalities outside China. The economic impact in Asia could be significant, although we won’t see this properly reflected in data until the monthly figures released at the end of February.
Despite this worrying news the markets have a risk-on tone to start the week with small gains made across Europe in the FTSE and Dax. Currencies are mostly flat with the British Pound falling slightly and giving back some of the gains made last week.
In the absence of US volume and drivers, Monday’s session may be quiet. The big talking point comes from Japan where dismal GDP data points to a coming recession. Here’s ING with more,
“The 1.6%QoQ contraction in GDP in 4Q19 (-6.3%QoQ annualised) was a surprise only in its magnitude. The decline was not much in doubt. Following on from Japan’s 2 percentage point October consumption tax hike, there was a wholly expected decline in expenditure, which was only unusual in that the pre-hike front-loading of spending was very muted…
At the beginning of the year, even this awful 4Q19 GDP figures could have been written off as a bygone, with 2020 shaping up to be buoyed by a less bellicose trade environment and a possible pick up in technology demand and production . The outlook was fair, rather than good, but that was before Covid-19 hit and now the story has changed substantially.”
ING don’t see this merely as a blip and they call for a full blown recession with full-year GDP growth for 2020 at -1.1%. Perhaps most worrying of all is the potential for the situation to significantly worsen if the coronavirus spreads. With a cruise ship docked in Japan reporting 99 new cases, the Japanese government is trying to contain the spread before the Olympic Games are in jeopardy. As The Guardian reports,
“…the Japanese government has advised citizens to avoid mass gatherings. On Monday it cancelled celebrations for the emperor’s birthday, while organisers of the Tokyo marathon cancelled next month’s mass participation race, in which 38,000 people were due to take part. Omi said any disruption to this summer’s Tokyo Olympics – including possible cancellation of the Games – would depend on how and if the virus mutates in the coming months, as well as the effectiveness of the international community’s attempts to contain the outbreak.”
Japan’s dire GDP figures are not isolated. US retail figures out on Friday were weaker than expected and German Q4 GDP growth reported on Friday came in at a pathetic 0.03% q/q after 0.2% q/q in Q3. This adds to the December industrial production figures which were even more troubling. With all these signs of economic weakness happening before the impact of the coronavirus, the euphoria associated with the trade deal seems distant. Q1 figure are a real concern for markets, especially in Asia.
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TAGS: Japanese Yen Forecasts