George Lucas, Raiz Group CEO
In Japan, the resignation of Japan’s Prime Minister Yoshihide Suga at the start of September appears to have raised investors’ hopes that the country might see a renewed focus on the economic policies of his predecessor Shinzo Abe, such as further fiscal stimulus and structural reform.
The resignation announcement, which came after Mr Suga’s approval ratings dropped to an all-time low, has led to a significant rally in Japan’s stock market that has seen it now almost entirely unwind its underperformance this year relative to the rest of the world.
The rebound follows data out earlier this month that showed Japan’s economy grew an annualised rate of 1.9 per cent in the second quarter, better than the initial estimate of a 1.3 per cent gain, confirming the country’s gradual recovery from a COVID-induced slump.
Interestingly, the yen has held up against the US dollar and we do not expect it to fall much over the remainder of the year.
Fears increase over China slowdown
Across in China, the current slowdown in the world’s second largest economy has reignited some 2015-style “hard-landing” fears, resulting in negative spill-overs particularly for commodity currencies and materials-heavy stock markets such as Australia, I am guessing not helping Indonesia and Malaysia currencies either.
We think the poor performance of China’s stock market — both in the past few days and over the year — has a couple of key drivers. A key contributor is that the country’s economy has slowed by a greater margin than many people initially expected, stoking fears it is losing momentum.
Another contributor is that authorities in China have increasingly cracked down on the private sector across a number of fronts, ranging from healthcare, liquor, gaming and even after-school tutoring.
Looking ahead, Chinese authorities will ultimately step in to stabilise domestic financial markets in the event of large-scale corporate defaults such as the one by developer China Evergrande Group, which is presently in the throes of a liquidity crisis with over $300 billion in liabilities.
It’s also worth noting that it’ll probably take more than a cyclical slow-down in China’s economic growth — and weakness in its stock market — to weigh materially on global appetite for risk. The global markets will likely focus more on China’s currency than the Chinese stock market.
Aus unemployment drops again to 4.5%
In Australia, official data showed the unemployment rate fell from 4.6 per cent in July to 4.5 per cent for August, despite 146,300 jobs being lost.
The reason for this is that many people gave up looking for work as lockdowns weighed on the labour market. Looking forward, it is unlikely that the jobless rate will surpass its level prior to the emergence of the delta variant over the coming months due to a rebound in the participation rate
Bank Indonesia set to meet this week
In addition to central bank policy meetings this week out of the US Federal Reserve, Bank of England, and Bank of Japan, we have Bank Indonesia due to set policy rates in the southeast Asian nation.
Most analysts surveyed by news agency Reuters expect Bank Indonesia to keep its key interest rate steady as the country continues to recover from the coronavirus pandemic.
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