JPY gains despite weak GDP data

Today’s headlines

What’s happening: The Japanese yen traded higher this morning, shrugging off downbeat domestic GDP data.

What happened: Investors lowered speculations of the US Federal Reserve hiking interest rates this year, which helped the Japanese yen record gains for the second straight session.

Weakness in the US dollar also provided support to the JPY, ahead of some key economic reports from Japan.

Why it matters: Data released this morning showed that Japan’s economy grew at an annualised rate of 1.1% in the second quarter, slowing from a 1.9% expansion in the previous quarter. The figure also missed market estimates of 2.0%.

On a quarterly basis, Japan’s GDP expanded 0.3% in the second quarter, coming in below market expectations of 0.5%. Private consumption, which represents more than half of economic output, came in flat in the recent quarter, lower than 0.3% in the first quarter. This, too, missed market estimates of 0.5% growth.

The recent economic data from the US, including nonfarm payrolls and gauges of consumer and producer price inflation, have dampened speculations of the Fed hiking interest rates this year.

Weakness in the US dollar provided a boost to the Japanese yen this morning. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.2% to 99.50, trading close to its weakest levels of the month.

The USD/JPY forex pair fell more than 0.2% to 159.00 this morning, while the Nikkei 225 rose 0.1% to 68,766.81.

What to watch: Investors will keep an eye on the Jackson Hole Economic Policy Symposium between August 27 and 29, for more insights into the Fed’s policy outlook.

Data on balance of trade, inflation rate and composite PMI from Japan will be released later during the week. Japan had posted a trade deficit of ¥406.9 billion in June versus a year-ago surplus of ¥122.3 billion and is expected to record a wider gap of ¥680 in July. Analysts expect Japan’s core consumer price index to accelerate to 1.8% year-over-year in July from the previous month’s 1.6%, while Japan’s S&P Global Composite PMI Business Activity Index is expected to edge higher to 52.8 in August from 52.7 in July.

The markets today

European stocks in focus today ahead of the ZEW economic sentiment index

Context: Equity markets in Europe closed mostly lower on Friday despite some strong economic reports.

Details: Data released on Friday showed that the Eurozone posted a trade surplus of €8.6 billion in June, up from €4.8 billion in the year-ago month. The figure also topped market estimates of a €2.2 billion gap.

The Eurozone recorded the highest monthly trade surplus since February, with goods exports jumping 14.4% to more than a one-year high of €272.5 billion, while imports grew at a slower pace of 13.1% to €264 billion during the month.

The Eurozone economy grew by 0.4% in the second quarter, in-line with preliminary estimates and higher than the previous quarter’s flat growth. The number of employed persons in the Eurozone rose by 0.1% to 176.577 million in the second quarter, at the same pace as in the first quarter.

Tech and pharma stocks pulled back on Friday. Shares of ASML edged lower, after sharp gains earlier in the week as investors continued to monitor massive spending on AI infrastructure. Shares of Argenx and Sanofi also settled lower on Friday.

The STOXX Europe 600 Index fell 0.21% to close at 657.86 on Friday. London’s FTSE 100 declined 0.21% to 10,750.11, while France’s CAC 40 shed 0.16% to close at 8,636.80. Germany bucked the trend, with the DAX 40 gaining 0.53% to 26,440.31.

What to watch: Investors await the release of economic data on Eurozone’s ZEW economic sentiment index and Germany’s ZEW economic sentiment index on Tuesday. The ZEW indicator of economic sentiment for the Eurozone is expected to rise to 25.4 in July from previous reading of 23.4. Analysts expect Germany’s ZEW indicator of economic sentiment to surge to 30 in August from 26.3 in the previous month.

Other Markets: US trading indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.20%, 0.17% and 0.13%, respectively.

The news shaping the markets

Ukraine increased long-range attacks on Russia, launching around 600 drones targeting the Moscow region overnight. The news sent the USD/RUB pair lower in forex trading this morning.

Thailand’s GDP grew by 1.9% year-over-year in the second quarter, easing from 2.8% in the previous quarter. However, the latest reading surpassing market estimates of 1.7% exerted pressure on the USD/THB forex pair.

Singapore’s non-oil domestic exports surged 24.2% year-over-year in July, accelerating from 20.8% growth in the previous month. This being the eleventh straight month of growth sent the USD/SGD pair lower in forex trading this morning.

New Zealand’s annual food inflation slowed to 1.9% in July from 2.5% in the previous month, which lent support to the NZD/USD forex pair.

Canada’s manufacturing sales climbed 0.1% to C$78.8 billion in June, compared to a 1.3% gain in May. The latest reading topping market estimates of a 0.1% decline sent the USD/CAD pair lower in forex trading this morning.

What else to watch today

• India’s Unemployment Rate (1430 UAE Time)
• Canada’s Inflation Rate (1630 UAE Time)
• Canada’s Foreign Securities Purchases (1630 UAE Time)
• Canada’s Foreign Securities Purchases by Canadians (1630 UAE Time)
• Canada’s New Motor Vehicle Sales (1630 UAE Time)
• US NY Empire State Manufacturing Index (1630 UAE Time)
• US NAHB Housing Market Index (1800 UAE Time)
• US NOPA Crush Report (2000 UAE Time)