USD/JPY has posted losses in the Tuesday session, erasing the gains seen on Monday. In North American trade, the pair is trading at the 113 line. On the release front, Japanese Tertiary Industry Activity declined 0.2%, weaker than the estimate of a 0.1% gain. In the US, construction numbers disappointed, as both Building Permits and Housing Starts were weaker than expected.
US construction data pointed downward in April. Building Permits dropped to 1.23 million, short of the forecast of 1.26 million. The news wasn’t any better from Housing Starts, which slipped to 1.17 million, compared to the estimate of 1.26 million. This marked the smallest number of housing starts since November 2016. Despite the weak numbers, demand for housing remains high, fueled by a labor market that is close to capacity and unemployment at just 4.4 percent.
In Japan, inflation and manufacturing reports were solid. PPI rebounded in remarkable fashion, showing improvement in 10 straight releases. The index jumped to 2.1% in April, above the forecast of 1.8%. Is inflation on the move? We won’t get a look at Tokyo Core CPI and other inflation indicators until next week, but stronger numbers would put pressure on the BoJ to reconsider its ultra-loose monetary policy, which has yet to produce sustained growth or higher inflation, as was advertised by the government and the BoJ. There was more positive news from the manufacturing sector, as orders for machine tools jumped 34.7% in April, on a year-on year basis.
President Trump and his aides continues to be preoccupied with damage control, as the White House and Congress remain focused on Comeygate, as the fallout from Trump’s dismissal of FBI director James Comey continues. There was more bad news for President Trump on Tuesday, with a report in the Washington Post that Trump had shared confidential intelligence reports with Russia’s foreign minister at a meeting last week. The White House has denied the report, but the timing is particularly bad for Trump, who is already under investigation for possible Russian involvement in the presidential campaign. The markets are concerned that Trump will be so busy trying to put out political firestorms, that his agenda of increased fiscal spending and tax reform will stall. These jitters could hurt investor confidence and send global stock markets lower.
