FXT Economic Data Summary (Asia-Pacific | 08/19)

German Investor Confidence Continues to Improve

German investor confidence improved further in August, with the ZEW Economic Sentiment Index rising from 26.3 to 34.2, above the market expectation of 30.1, while the Current Situation Index recovered from -77.6 to -61.1, better than the expected -68.8. Solid corporate earnings, improving exports and progress on federal infrastructure projects collectively lifted expectations. By sector, expectations for the automotive industry jumped by 22.2 points, while the chemical and pharmaceutical, mechanical engineering and metals industries also improved. Private consumption expectations rose to -6.2, while construction expectations increased to 2.1.

Eurozone confidence improved at the same time, with the Economic Sentiment Index rising from 23.4 to 31.4, above the expected 25.0, while the Current Situation Index improved by 16.2 points to -21.5. FXTRADING believes the most pessimistic phase for the European economy may be passing, with exports and fiscal spending providing some support. However, the foundation of the recovery remains fragile, and whether the improvement can translate into sustained gains in consumption, investment and industrial activity still needs to be seen.

Australian Consumer Confidence Rebounds

Australian consumer confidence recovered in August, with the Westpac-Melbourne Institute Consumer Sentiment Index rising from 83.9 to 88.9, an increase of 6.0% month-on-month. The improvement mainly occurred after the Reserve Bank of Australia left interest rates unchanged on August 11. The index measuring households current financial conditions rose from 71.1 to 80.0, while the Time to Buy a Dwelling Index increased from 85.4 to 95.7.

Forward-looking indicators showed relatively limited improvement. The index measuring household financial expectations over the next 12 months rose from 96.5 to 98.2, while expectations for economic conditions over the next year increased from 78.3 to 82.8. The Unemployment Expectations Index, however, climbed from 129.9 to 135.7. The House Price Expectations Index fell from 118.0 to 110.8, while 59% of respondents still expected mortgage rates to rise further. FXTRADING believes the pause in rate hikes has temporarily eased pressure on households, but the lagged effects of previous monetary tightening are still emerging. Concerns over employment and cautious consumer spending suggest the RBA is likely to remain on hold in the near term.

U.S. Retail Sales Cool Sharply

U.S. retail sales fell 0.6% month-on-month in July, significantly weaker than the market expectation for a 0.2% increase. Sales excluding autos declined 0.3%, while sales excluding both autos and gasoline still fell 0.2%. Retail sales excluding food services dropped by 0.8%. This suggests that weakness in consumption is no longer concentrated solely in volatile categories such as autos and energy, with the impact of high interest rates on household demand becoming increasingly evident.

However, U.S. consumption has not entered a broad contraction. Retail and food services sales were still up 5.0% year-on-year in July, while sales from May through July increased 6.3% from the same period a year earlier. Sales excluding autos rose 5.8%, while sales excluding both autos and gasoline increased 4.8%. FXTRADING believes that with employment and consumption cooling simultaneously, alongside some recent easing in inflationary pressures, the need for the Federal Reserve to tighten policy further is diminishing, making unchanged interest rates more appropriate for the current economic environment.

Weak Domestic Demand Weighs on Japans Economic Recovery

Japan‘s real GDP grew 0.3% quarter-on-quarter in the second quarter, equivalent to an annualized growth rate of 1.1%, below the first quarter’s annualized pace of 2.1% and the market expectation of around 2.0%. Domestic demand fell 0.2% quarter-on-quarter, with private consumption broadly unchanged, capital expenditure declining 1.2% and private residential investment falling 0.5%.

External demand was the main contributor to economic growth, with net exports adding 0.5 percentage points. Exports rose 0.5%, while imports declined 1.5%. U.S. demand for Japanese hybrid vehicles and continued global investment in artificial intelligence supported related exports, while government consumption increased 1.6% over the same period. FXTRADING believes that although Japans economy remains in expansion, growth is still relatively dependent on external demand and government spending. The insufficient recovery in private demand will make policy normalization more difficult, potentially encouraging the Bank of Japan to adopt a more cautious pace of further rate hikes.

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