In today’s briefing:
- Eurozone: When Deflation?
- Japan: Early Signs of a Potential Re-Weight
- EA: HICP Trends Extend in Jun-23
Eurozone: When Deflation?
- Based on monthly producer price decreases during a recession, the PPI will fall more than 10% in August, increasing the likelihood of a negative CPI print that month.
- If we take the relationship between Spanish CPI and PPI as an input, Eurozone headline inflation should decrease to practically zero.
- However, based on the long lag between Eurozone CPI and money supply growth, Eurozone headline inflation will not turn negative until at least March next year, if at all.
Japan: Early Signs of a Potential Re-Weight
- Global Active Funds make tentative moves back in to Japanese equities after a 5-year decline.
- Buying seen in Daiichi Sankyo, Keyence Corp and Sumitomo Mitsui Financial Group, with Japan capturing $1.3bn of new fund investment since September 2022.
- Ownership levels still near record lows, with clear potential for further ownership growth from here.
EA: HICP Trends Extend in Jun-23
- Flash EA inflation fell by 59bp to 5.51% in Jun-23, undershooting expectations by 0.2pp. Downward trends in the headline rate and surprises remain encouraging.
- Core inflation ticked up almost as far as expected, but energy prices are falling faster than forecast. Non-core weakness should keep driving most of the headline slowing.
- We expect less progress in July and August before stepping low enough in September to comfort the ECB, assuming underlying pressures keep easing.
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