Japan just released a raft of data and most of it was really weak

DAVID SCUTT 

SEP 30, 2016, 10:31 AM   

Photo by Adam Pretty/Getty Images

Be it the Bank of Japan or the government, policymakers in Japan will not be pleased with the latest batch of economic data that’s just hit.

It’s weak, and that’s putting it mildly.

At the top of that list is inflation, or should we say deflation.

According to Japan’s statistics bureau, core consumer price inflation — that which excludes fresh food prices — fell by 0.5% in the 12 months to August. It was unchanged from the level seen in July, but missed expectations for an uptick to -0.4%.

It currently sits at the equal lowest level seen since March 2013.

Suggesting that deflationary pressures are unlikely to ebb when September’s figures are released next month, core CPI in Tokyo — released one month in advance of the national figure — slid by 0.5% in the past year, below the 0.4% pace seen in August.

It too was the lowest level seen since March 2013, and missed forecasts for an unchanged reading from August.

Making matters worse, so-called core-core inflation — that which excludes both fresh food and energy prices and more akin to core CPI figures used in other advanced economies — rose by just 0.2% in the year to August, down again on the 0.3% pace seen in July.

In overall terms, headline CPI fell by 0.5% from a year earlier, down on the 0.4% drop seen a month earlier.

Disinflationary forces appear to be growing, rather than subsiding, for the moment, much to the disgust of the Bank of Japan no doubt.

Earlier this month the BOJ announced a commitment to overshoot on its 2% inflation target, pledging to expand the nation’s monetary base until the annual increase in CPI exceeded its price stability target “and stays above the target in a stable manner”.

That looks a long way off yet. It’s little wonder why there’s widespread scepticism that the bank’s newly adopted “QQE with yield curve control” policy stance, adopted at its September monetary policy meeting, will struggle to achieve this goal.

Outside of inflation, the news elsewhere was hardly stellar with the exception of industrial output.

After receiving a poor retail sales result yesterday, the weakness in household consumption was confirmed with spending plunging 3.7% in August.

The figure missed forecasts for a decline of 1%, and was the steepest monthly decline since April last year.

It left year-on-year decline at 4.6%, the largest annual contraction since March. It too was below expectations for a narrower decline of 2.5%, and followed a 0.5% drop in July.

Ugly. There’s no other way to put it.

Even labour market data, one of the few bright spots in recent months, also underwhelmed.

The unemployment rate ticked up to 3.1% in August, up from the 3.0% level seen in July. The jobs-to-applicants ratio — simply the number of jobs available compared to those looking for work — held steady at 1.37.

While it remains at a 25-year high — certainly nothing to scoff at — the level was unchanged from July.

With inflation, spending and labour market data all disappointing, there data deluge was salvaged partially by an impressive uplift in industrial output.

It increased by 1.5% in August from a month earlier, an improvement on 0.4% decline of July and forecasts for a gain of 0.5%.

Not only that, factories indicated that they expect output levels to improve further in the months ahead, forecasting increases of 2.2% and 1.2% for September and October.

The improvement in factory output fits with recent manufacturing PMI data which revealed activity levels improved for the first time in seven months in September.

Still, while there’s signs of life in the nation’s industrial sector, it’s unlikely to offset the weakness seen in other areas of the economy, particularly the household sector.

The Japanese yen has weakened following the data deluge with the USD/JPY sitting at 101.20 as at 9am JST, up 0.19% for the session.

The Nikkei 225, following the lead provided by US stocks, is currently down 1.5% at 16,448.91.

Boosted by heightened risk aversion, Japanese 10-year government bond yields sit at -0.085%, below the 0% level targeted by the Bank of Japan.

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BRITAIN BEATS: UK GDP growth revised up to 0.7% in Q2

• Will Martin
 

• 5h
• 99

Reuters / Jason Cairnduff

UK GDP grew by 0.7% in the second quarter of 2016, according to the final figures released by the Office for National Statistics on Friday, a beat on the previous estimates of 0.6% first released in late July.

On an annual basis, GDP rose by 2.1%, slightly lower than the July estimate of 2.2%

The 0.7% growth was driven largely by strong quarterly performances by the production and services sectors, while agriculture and construction provided a small drag on the numbers.

When the ONS released its preliminary estimates of Q2 GDP in late July, the numbers surprised to the upside, with growth having been expected to read 0.5% for the quarter, and 2.1% for the year as a whole.

Here's the ONS' chart from Friday morning:

Office for National Statistics

Since that time, economic data in the form of PMI surveys, business confidence readings and other indicators, has suggested that the initial impact of the referendum result on the UK economy has been less marked than had been expected, with numerous organisations which had predicted a referendum triggered recession rowing back on those predictions, and arguing instead for marginal growth in the UK over the coming couple of years. 

Along with Friday's GDP numbers, the ONS also released its latest findings on the state of the UK's services sector. The data office found that so far there is "no evidence of a significant impact" on the dominant sector of the British economy from the vote.

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More: UK GDP Brexit EU Referendum UK Economy

Largest hedge funds bleed assets - survey

• Reuters

• Sep. 29, 2016, 10:00 AM
• 112
 

Current Prices

Symbol	Price	+/-	%
JPM	66.34	+0.69	+1.10
OZM	4.35	-0.15	-3.30

Disclaimer

By Lawrence Delevingne

NEW YORK, Sept 29 (Reuters) - Assets at the largest hedge funds have dropped sharply, according to a new survey by industry data and news provider Hedge Fund Intelligence.

The twice-annual Billion Dollar Club report, released on Thursday, showed a decline of nearly 7 percent, or $132 billion, to July 2016 from a year ago. Firms including Och-Ziff Capital Management Group LLC, BTG Pactual Asset Management, York Capital Management, Pershing Square Capital Management and J.P. Morgan Asset Management lost the most assets over the first half of 2016, according to HFI.

The survey attempts to tabulate all Americas-based firms that manage at least $1 billion in traditional hedge fund assets. Together, 302 firms ran $1.84 trillion as of July 1, nearly two-thirds of the entire hedge fund industry, often estimated to manage about $3 trillion.

Assets for the Billion Dollar Club have fallen over the last two six-month counting periods, the first consecutive drop since 2009, when hedge funds reeled from the global financial crisis.

The data provides another sign of struggle in the industry, with investment returns lackluster at many well-known firms. The HFI Americas Composite Index, which tracks a range of strategies, gained 3.35 percent this year through August. That compares to a 6.21 percent gain for the S&P 500 Index and a 4.22 percent gain for the iShares Barclays Aggregate Bond Fund over the same period.

To be sure, some firms consolidated their power in the industry. Top asset gainers by dollar amount were systematic behemoth AQR Capital Management, credit-focused Centerbridge Partners, quantitative pioneer Renaissance Technologies, technology stock specialist Coatue Management and macro-focused Element Capital Management, according to HFI.

Bridgewater Associates retained its spot atop the list of the largest hedge fund managers, with $103 billion as of June 30, down just 1.15 percent since the start of the year. Bridgewater, a macroeconomic specialist based in Westport, Connecticut, manages approximately $150 billion overall, including non-hedge fund products.

Hedge funds, which are only open to qualified individuals and institutions, typically charge management and performance fees, offer investors their capital back within a year, and bet on the price of securities both increasing and decreasing, so-called longs and shorts.

BIG LOSERS

The largest decline in assets came at Och-Ziff, one of the few publicly traded hedge fund managers. The New York-based firm has struggled with a gain of just 0.36 percent in its flagship multi-strategy fund this year through August, according to a filing with the U.S. Securities and Exchange Commission. That followed a small loss last year.

Och-Ziff, still the fourth largest as of July 1 with $39.2 billion, has also attracted unwanted attention because of a U.S. investigation into alleged bribery of African officials and an anticipated guilty plea and $400 million fine. A spokesman for Och-Ziff declined to comment.

BTG Pactual suffered the most dramatic decline, with assets falling 83 percent since Jan. 1. The former chief executive officer, André Esteves, of the Brazil-based investment bank and money manager was arrested late last year on obstruction of justice charges, which he has denied.

BTG asset management CEO Steve Jacobs said assets in its flagship emerging markets-focused macro hedge fund fell to $150 million from $5 billion because of that "external crisis." But assets for the fund have since tripled from the low point on the back of positive performance since March, according to Jacobs.

Representatives of the other firms declined to comment or did not respond to a request for comment.

(Editing by Carmel Crimmins and Jeffrey Benkoe)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

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MEMO: Deutsche Bank CEO tells staff: 'Some forces in the markets are currently trying to damage trust'

• Oscar Williams-Grut
 

• 4h
• 8,614
 
• 12

John Cryan, the CEO of Deutsche Bank, at the bank's annual shareholders meeting in Frankfurt, Germany, on May 19.AP Photo/Michael Probst

Deutsche Bank CEO John Cryan has sent a letter to employees reassuring them on the health of the business as its share price plummets.

Cryan said in a memo sent Friday and published online that "ongoing rumours are causing significant swings in our stock price," adding: "Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust."

The memo has helped Deutsche Bank shares claw back some ground in Frankfurt, though they are still down by over 4%.

Deutsche Bank shares had crashed by 7% in the US and Germany early Friday after reports that hedge fund clients were restricting business with the bank to limit exposure.

Shares plummeted close to 30-year lows earlier this week after reports surfaced that the US Department of Justice was looking to impose a $14 billion fine for mortgage-backed security misselling in the run-up to the financial crisis. The fine is bigger than the bank's market value, leading to fears the bank would be sunk. 

There have also been reports in Germany that Berlin is preparing a bailout for the lender as a final backstop, though the German government has repeatedly denied this.

Here's the full memo Cryan sent to workers on Friday:

"Dear Colleagues,

"You will have seen speculation in the media that a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns. We should consider this in the context of the bigger picture: Deutsche Bank overall has more than 20 million clients.

"I understand if you feel concerned by the extensive coverage on this issue. Our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price.

"It is our task now to prevent distorted perception from further interrupting our daily business. Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.

"Deutsche Bank has strong fundamentals. Let me mention some of the most important facts at this point:

"1. We fulfil all current capital requirements and our restructuring is well on track. We completed the disposal of the British insurer Abbey Life this week and the sale of our stake in the Chinese Hua Xia Bank will be finalised soon. This will further improve our capital ratio.

"2. We have significantly decreased our market and credit risk in recent years. At no point in the last two decades has the balance sheet of Deutsche Bank been as stable as it is today.

"3. Despite low interest rates and a difficult environment we posted a pre-tax profit of about 1 billion euros in the first half of 2016. Before extraordinary items like restructuring costs, we earned about 1.7 billion euros. This demonstrates the operating strength of Deutsche Bank.

"4. In a situation like this, the most important factor is our liquidity reserves. Currently they still amount to more than 215 billion euros. This is an extremely comfortable buffer. This is clear proof of how conservatively we have planned. This is acknowledged by numerous banking analysts.

"There is therefore no basis for this speculation. Nor can uncertainty about the outcome of our litigation cases in the US explain this pressure on our stock price, if we take the settlements of our peers as a benchmark.

"You have all done a tremendous job over the past few days. You are the ones who are in constant contact with our clients and making it clear how Deutsche Bank is really doing. You are Deutsche Bank — that is impressively clear. All of us in the Management Board highly appreciate it.

"You will hear back from me soon. Please keep working as you have been doing so far. We are and we remain a strong Deutsche Bank.

"Yours sincerely,
John Cryan"

The rearguard action from Cryan appears to be working. Deutsche Bank shares fell by as much as 8% on Friday morning, falling below the symbolically important €10 level, but have since recovered slightly. Here's how Deutsche Bank shares look at 10:55 a.m. BST (5:55 a.m. ET) in Frankfurt, Germany:Investing.com

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Europe is finally starting to get some inflation

• Will Martin
 

• 5h
• 203

Herb Real/Flickr

Inflation in the eurozone is finally starting to pick up, according to the latest preliminary inflation figures released by Eurostat on Friday morning.

Consumer price inflation, the key measure of price growth, came in at 0.4% year-on-year in September, matching the forecasts of economists polled before the release.

That represents a doubling in price growth from August, when inflation sat at just 0.2%

On a year-to-year basis core consumer prices grew by 0.8%, against a forecast of 0.9%, and a previous reading of the same number, disappointing against forecasts.

Core prices are an important measure because they strip out the most volatile items — things like fuel and food prices, which are subject to massive variations.

"Looking at the main components of euro area inflation, services is expected to have the highest annual rate in September (1.2%, compared with 1.1% in August), followed by food, alcohol & tobacco (0.7%, compared with 1.3% in August), non-energy industrial goods (0.3%, stable compared with August) and energy (-3.0%, compared with -5.6% in August)," Eurostat said in a press release alongside the data.

Here's the chart showing that breakdown:

Eurostat

Friday's numbers will come as a welcome relief for the European Central Bank, which has embarked on years of unprecedented monetary policy measures to try and boost inflation. The measures currently being implemented by the ECB, including negative interest rates, and more than €1 trillion of quantitative easing look to have finally started doing their job.

Until now the ECB's negative interest rate policy (NIRP) has not managed to stimulate inflation, although president Mario Draghi has repeatedly said that he and other senior bank officials are convinced the measures are working. The ECB's official inflation target is close to but less than 2%.

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More: Inflation ECB Eurostat

We've just received another sign China's industrial sector is stabilising

DAVID SCUTT 

SEP 30, 2016, 12:23 PM   

Picture: Getty Images

Activity levels for smaller Chinese manufacturing firms improved fractionally in September, according to the latest Caixin-Markit manufacturing purchasing managers’ index (PMI) report released on Friday.

The headline PMI came in at 50.1, a figure that was in line with expectations and a small improvement on August’s 50.0.

The PMI measures changes in activity levels in China’s manufacturing sector from one month to the next. A figure above 50 points to an improvement in activity levels while a sub-50 number indicates that they deteriorated.

Essentially, the higher the number, the better.

Although, at 50.1, it indicates that activity levels were largely unchanged from August, it was the third straight month that they either held steady or improved, something China’s not been seen since late 2014.

“Having stagnated in August, Chinese manufacturers signaled little-change to overall operating conditions during September,” said Markit.

“On a positive note, output and total new orders continued to expand, albeit marginally, while firms raised their purchasing activity for the third month in a row.”

Offsetting those improvements, the group noted that “cost-cutting initiatives contributed to a further marked reduction in employment” which, as a result “signalled a sustained squeeze on operating capacity as highlighted by a further increase in the amount of outstanding business”.

Fitting with recent producer price inflation data released by the government, Markit said that “inflationary pressures appeared to intensify during September, with both input costs and output charges rising at quicker rates than in August”.

It’s another sign that the bottom of the commodity price cycle was likely seen earlier this year, and an outcome that may have ramifications for both fiscal and monetary policy in China should the uplift in inflationary pressures persist.

The Caixin-Markit survey is focused on activity levels for small and medium-sized manufacturing firms, distinguishing it from the official manufacturing PMI report released by the Chinese government which monitors activity levels for all manufacturers, regardless of size.

Given the recent relationship between the two surveys, the small uptick in the Caixin-Markit survey bodes well for the official PMI report that will be released on Saturday.

In August it came in at 50.4, the highest level seen since October 2014. The strength in that survey was driven by improved activity levels among larger manufacturing firms.

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CONTAGION: European banks are getting crushed by Deutsche Bank

• Will Martin
 

• 4h
• 1,709
 

Warner Bros

Shares across the European financial sector are getting pummelled on Friday as fears about the potential collapse of Germany's biggest lender, Deutsche Bank, continue to grow.

Deutsche shares have collapsed this week, falling to several record lows, as investors start to fear that the bank could collapse under the weight of a proposed $14 billion fine from the US Department of Justice.

Bloomberg News reported last night that about 10 hedge funds have moved to limit exposure to the bank and have withdrawn funds, which caused Deutsche's shares to plunge in US trade. That fall has continued on Friday,with the bank's shares passing below €10 each for the first time in history in early trade in Frankfurt.

In turn, stocks across the board, but particularly in the financial services sector, are crashing lower on Friday. Around 10:50 a.m. BST (5:50 a.m. ET) the Stoxx index of European banking shares is off by roughly 3.4% as contagion from DB spreads to banks across the continent. Soon after markets opened at 8:00 a.m. BST (3:00 a.m. ET) the index fell almost 4% Here's how that looks:

Investing.com

On a bank-by-bank basis, Deutsche is near the bottom of the pile, down more than 4% having dropped by 8% at one point, while Germany's second largest lender, Commerzbank is the biggest faller, lower by almost 5.5%

Here's the scoreboard from some of the continent's other top banks:

• Unicredit — down 4.22%
• Societe Generale — down 3.18%
• Credit Agricole — down 2.70%
• Santander — down 3.52%
• Barclays — down 2.24%
• Royal Bank of Scotland — down 1.67%

However, it is not only the banking sector witnessing substantial losses on the day, with all of the continent's major share indexes significantly lower on the morning. Peripheral indexes including the FTSE MIB in Italy, and IBEX 35 in Spain fell by as much as 2.5% soon after the open, although most indexes have now recovered a little. Here's the scoreboard:

Investing.com

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