In this briefing:
- Komatsu, HCM and CAT Tactical Recovery Targets and Macro Pivot Support
- BoJ Steps in as ECB Exits
- Japan Department Store Apparel Sales Down 35% in a Decade
- Japanese Supermarket Consolidation Likely and Soon
- Japan: Upcycle Intact
1. Komatsu, HCM and CAT Tactical Recovery Targets and Macro Pivot Support
We thought a technical view on these counters would help clarify where tactical rally targets come into play as well as more important macro support levels where a basing process is expected to begin.
Key resistance points can be used as short zones with key pivots stops and limit levels that reign in risk.
All three stocks display varying degrees of a macro descending corrective wedge formations that have yet to fully mature.
CAT stands out as the more buoyant of the group and faces its own set of upside pivot resistance points with solid macro support to work with on weakness.
We wanted to fold in a technical view with Mio Kato, CFA and his insight Komatsu, HCM, CAT: The Stock Punishment Does Not Match the Outlook Deterioration Crime . This group may be ahead of the earnings curve and why we may see more gas in a corrective bounce cycle (CB easy policy and the hunt for value may be part of the rally) before more pressure points are hit to re test macro support targets.
2. BoJ Steps in as ECB Exits
By Shweta Singh, Managing Director Global Macro
- Global central banks turning dovish
- But BoJ maybe the only DM central bank ‘properly’ injecting liquidity this year
- European debt – including Italian BTPs – could benefit the most
3. Japan Department Store Apparel Sales Down 35% in a Decade
Last month, the Japan Department Store Association (JDSA) announced a 1.1% drop in sales at department stores for calendar year 2018, with sales also down 0.8% on a same-store basis.
This was a reasonable result in a year when there were many store closures, both permanent and temporary, and slow traffic due to extreme weather events, and of course the background trend of an ageing consumer base.
However, the underlying trend remains clear: apparel sales continue to fall, down more than a third in a decade. Meanwhile, cosmetics has seen its share of sales double.
Since apparel accounts for 30% of department store sales on average and as much as 50% for regional stores, this is a serious weakness. With competition from speciality chains and online intensifying yet further and department stores themselves cutting space for apparel, there is unlikely to be any respite.
For this reason, and with further store closures planned in the next few years, the department store sector will continue to contract.
4. Japanese Supermarket Consolidation Likely and Soon
Signs of consolidation in the supermarket sector have come and gone over the past decade, but recent events suggest there will now be a sustained increase.
Traditionalists, and the wholesalers, who control the sector, point to the positives of greater variety and local food differentiation; yet these are what have kept the sector so fragmented and inefficient.
However, with falling populations and a shift to online buying gradually gaining momentum, as well as encroachment from other sectors such as drugstores, the time is ripe for bigger fish to start eating up the many, many tiddlers.
5. Japan: Upcycle Intact
Following 3Q’s contraction, economic activity rebounded in the final quarter of 2018 led by investment spending. Global trade tensions and the planned increase in the consumption tax in 2019 are headwinds but we expect the Japanese economy to sail through. The investment upcycle remains intact underpinned by rising profits and consumption spending well supported by easy monetary and fiscal policy. We reiterate our overweight call on Japanese equities.
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