JPY GDP beats substantially
EUR ECB maintains hawkish posture
GBP Worst drop in UK Retail Sales in 4 years
USD Empire, Philly, IP all on tap
Japanese GDP printed at 1.2% versus 0.9% projected as Japanese economy grew at the fastest pace in 3 years. Fueled by the longest corporate expansion in 30 years the Japans GDP expanded at a 4.8% annual rate far better than consensus estimates of 3.8% growth. Furthermore nominal prices climbed 5% - faster than even the headline GDP number. The news stoked speculation that BOJ will now have ample economic ammunition to raise rates 25bp at its meeting next week. Many analysts believe that this will be the central banks last chance to do so before parliamentary elections scheduled for June. Traditionally Japanese monetary authorities move to the sidelines during campaign season.
However, as if on cue, Japanese politicians, specifically the powerful LDP Policy Chief Shoichi Nakagawa quickly chimed in with yen dovish rhetoric stating that the recovery remains fragile and that the GDP data does not suggest any pronounced change for the better over the past month. Whether the BOJ will once again succumb to political pressure and stay pat remains to be seen. In the meantime the yen rallied against the greenback and on the crosses hitting 1 month highs as traders adjusted to the possibility of another rate hike.
In UK the news wasnt nearly as sunny as in Japan as Retail Sales recorded the worst drop in 4 years falling -1.8% vs. 0.2% expected. The biggest decline was in clothing and electronics sectors and that news along with the fact the RICS housing survey also printed below consensus, clearly curtails any bullish expectation that BOE will tighten any time soon. As we noted yesterday, when we questioned the markets excessive reaction to Mr. Kings statement, given the current of affairs we do not envisage additional rate hikes by BOE in the near future.