Household spending has been a burden on inflation, so the recent pickup up is good news for the BoJ. Yet for this to be sustained, we need to see an increase in wages which BoJ say institutions are working on initiatives. Meanwhile CHFJPY breaks key support and looks to extend losses.
Household spending was one of the better surprises from today’s data set, by expanding by 2.3% YoY to far exceed the 0.6% forecast and -0.1% prior. At 2.3% it is the fastest rate of expansion since August 2015 and has been helped higher by three consecutive monthly gains. In June, spending rose by 1.5%, its fastest increase in 4 months.
Consumer spending is a much-needed lubricant for inflation to pick up. Yet for this to sustain wages need to increase. Whilst wages have not yet materially increased, BoJ reported in the in recent meeting that many companies are looking at initiatives to provide this increase to provide support for the BoJ’s 2% inflation target.
Inflation was underwhelming as ever and there is a long way to go to turn this sanguine ship around. Yet baby steps appear to be in the making and all turnarounds must start somewhere.
Unemployment dropped by 3 percentage points to remove the 3-point increase in May. Although this takes us to multi-year low and firmly below the 1yr average once more, we’ll continue to keep an eye to see if a similar pattern occurs to that of 2007 to 2008. This period saw several crosses around the average before the trend turned and several years of rising unemployment ensued. Of course, we can also argue the famous last words that ‘it’s different this time’ because this era was the beginning of the GFC.
The job to application rate beat expectations of 1.5 to move to a fresh record high of 1.51. If we are to see this move lower whilst unemployment stutters at the lows then the case for an economic turnaround builds.
The Swiss Franc is in focus for traders after the SNB reiterated that their currency is significantly overvalued despite negative rates remaining in place. This has helped all majors to appreciate against the negative-yielding currency as we expect losses to be sustained into next week.
The weekly chart of CHFJPY is on track for a bearish engulfing candle and currently trades just above the low of the week. The break below 116.43 confirmed a double top pattern which, if successful, projects and an initial target at 114.26, just above the monthly S1. Yet as yesterday’s candle was so bearish and the right peak of the double top is relatively small compared with the first peak, we think it may trade beyond this target in due course.
The 8 eMA has crossed below the 21 eMA on D1 to show near-term momentum is increasingly bearish and as they both point lower, near-medium term momentum is also turning bearish. 115.13 is currently holding as support and is likely a pivotal level going forward. The monthly pivot is a sensible place to assume resistance at this point but we can use the zone between the monthly pivot and the original neckline (116.430 as a zone to aid with either entry or stop placement if we seek to fade into rally.
As there are only two trading session left in the month, the pivots will be recalculated at Monday’s close which will bring S1 lower. This may make the eventual 112.47 target more achievable.
