Stronger than Expected Japanese GDP Fail to Support Stocks

A stronger than expected GDP numbers out of Japan question the need for further easing measures.

European stock markets are under pressure as U.S. rate hike speculation fuel concerns about how the world economy will cope with less accommodative monetary policy in the U.S. especially as stronger than expected GDP numbers out of Japan question the need for further easing measures and a delay in the planned sales tax hike. Investors clearly are cautious ahead of the release of Fed minutes later today and oil prices are also fell back from highs, although prices remain above 48 per barrel. In mid-morning trade the DAX was down -0.33% on the day and the FTSE 100 down -0.38%. Eurozone peripherals are outperforming and the Italian MIB managed a slight gain.

Japan's GDP grew 1.7% in Q1 following the downward revised 1.7% drop in Q4. The magnitude of the increase in Q1 easily outpaced projections of an increase of 0.5%, but did follow a hefty downward revision to Q4. While the return to growth dodged a technical recession, the detail suggest underlying momentum is lacking in the economy, despite years of Abenomics and aggressive easing from the BoJ.

Germany's Constitutional Court Will Deliver Verdict on OMT program

Germany's constitutional court will deliver its final verdict on the central bank's OMT program shortly ahead of the Brexit referendum in the U.K. The court had initially referred the challenge to the European Union's Court of Justice, which already ruled the program legitimate in June last year. In the meantime, the ECB's QE program is also being challenged by German professors and businessmen at the German top court, highlighting that resistance in Germany against the ECB's expansionary policy remains high and that the ECB at least so far has not managed to win the trust and confidence of the German public.

Eurozone April HICP inflation was confirmed at -0.2% year over year as expected. Core inflation dropped to 0.7% year over year from 1.0% year over year in March. Annual energy price inflation remained steady at -0.8% year over year, but services price inflation fell back to the February level of 0.9% year over year after spiking to 1.4% year over year in March, which backs our reading that the variation over the March/April period had a lot to do with the earlier timing of Easter this year, which meant holiday related prices peaked earlier than in 2015 and subsequently fell back earlier.

 

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