Japanese GDP falls 1.6% on an annualized basis

The Day So Far

Early bounce this morning in equity markets, which has since largely been given up with traders cautious on a quiet day for data and ahead of a busy week, the highlight being the release of the July’s FOMC minutes and US CPI on Wednesday. Overnight, some largely poor Japanese GDP data dampened sentiment, coming in at -1.6% on an annualised basis, which although slightly better than expected, does little to suggest that ‘Abenomics’ is succeeding in reviving the moribund Japanese economy and raises the pressure on Prime Minister Abe to do more. So far, his efforts since taking office two years ago have focused on increasing government spending and weakening the Yen to boost exports by ordering the Bank of Japan to implement an aggressive QE programme, tripling its balance sheet in two years.

WTI crude continues to weaken, falling back below $42 once again as the Japan GDP figures disappointed. Mining stocks have been hammered, the resource-weighted FTSE 100 currently the only major European market trading in the red this morning.

The Afternoon View

Big week for Fed watchers, but we might have to wait until Wednesday’s FOMC minutes and CPI release for some clear direction in these markets. One trade that is looking more and more interesting is the long euro versus the dollar, a trade we wouldn’t’ have recommended some months or even weeks ago, but Greece has finally agreed a bailout agreement to access ESM funding, and Europe has some momentum economically, albeit from a low base, and following the sharp depreciation of the euro. That, coupled with the increasing likelihood that the Fed will not raise rates in September, should lead to a period of dollar underperformance in the coming days.