Japan inflation surges, UK Retail sales show strong growth

Insights into Japan's inflationary trends and UK's retail resurgence

By Ahmed Azzam | @3zzamous | 21 July 2023

  • Japan's inflation rate rises to 3.3% in June 2023

  • Ben Bernanke predicts Fed's interest rate hike may conclude credit-tightening campaign

  • UK retail sales surge by 0.7% in June 2023, marking third straight month of growth

  • UK retail sales surge by 0.7% in June 2023, marking third straight month of growth

  • US Senate bars China from buying crude from SPR, impacting oil dynamics

Asian stock markets experienced fluctuations today, with different trends observed in key regions. Hong Kong's market witnessed gains, providing a positive outlook. However, both Australia and Taiwan saw declines in their respective stock indices, which raised concerns among investors.

In the global market, US futures showed an upward trend, indicating positive sentiments among investors. On the other hand, European contracts exhibited a mixed performance, with some sectors showing promise while others faced uncertainties.

Japanese inflation data and BOJ's yield target

Japan's annual inflation rate in June 2023 edged up to 3.3%, slightly higher than the previous month's figure of 3.2%. However, this growth fell short of market forecasts, which had predicted a rate of 3.5%. Core inflation also saw a slight uptick, reaching 3.3%, aligning with consensus expectations.

Despite these inflationary pressures, the Bank of Japan's 2% target remains elusive for the 15th consecutive month. A former high-ranking finance ministry official expressed doubt about the possibility of the Bank of Japan adjusting yield curve control at the upcoming meeting. Governor Kazuo Ueda's recent dovish comments suggested little likelihood of such a move, though it might still occur as early as September.

Japanese bond investors are bracing for potential turbulence leading up to the policy decision next week. The option-implied volatility of Japan's 10-year bond futures surged to 7.34%, the highest level since April. This indicates an anticipated daily fluctuation of approximately 5 basis points in the benchmark yield, which the BOJ aims to keep capped at 0.5%.

UK retail sales surge: Third straight month of growth

In the United Kingdom, retail sales for June 2023 witnessed a notable increase of 0.7% month-on-month, marking an improvement from the previous month's growth of 0.1%. This robust performance surpassed market expectations of a 0.2% rise. It was the third consecutive month of growth in the retail sector and the fastest pace during this period.

The surge in retail sales was driven by various factors, including summer sales and favorable weather conditions. The positive momentum in the UK retail sector is being closely monitored by investors and economists, as it can have significant implications for the country's overall economic outlook.

Bernanke insights: Interest rate hike expectations

Former Chair of the Federal Reserve, Ben Bernanke, shared valuable insights on the widely anticipated interest rate increase by the Fed next week. He suggested that this move might signal the conclusion of the current credit-tightening campaign.

Market sentiment seems to align with this projection, as Fed funds futures are indicating a near-certain 25-basis point hike at the July 25-26 meeting, with limited chances of any further increases afterward.

US Senate's decision on Crude sale

The US Senate recently voted to bar China from buying crude from the Strategic Petroleum Reserve (SPR). This measure, added to the must-pass defense bill, also includes a restriction on any sales to Russia, North Korea, and Iran.

The decision has implications for the global oil market, with signs of tightening supply leading to a fourth consecutive weekly gain in oil prices. On the other hand, liquidity has fallen to its lowest level since late January, adding complexities to the market dynamics.

In the commodities market, most metals advanced, while grains experienced a drop. The developments in these sectors are being closely watched by investors and traders to gauge potential investment opportunities and risks.