In this briefing:
- Japan – Policymakers Panicking, We Are Not
- FLASH: BoE Blocked by Brexit Uncertainty
- FLASH: UK Retail Surges into Christmas 2018
1. Japan – Policymakers Panicking, We Are Not
Japanese policymakers are panicking. Economic activity contracted in 3Q. Inflation is slowing, up 0.8% YoY in December vs 1.4% YoY previously. Exports are flat lining. Unsurprisingly the BoJ left monetary policy unchanged this month while Abe’s cabinet, taking no chances approved a record initial budget for fiscal 2019 this week. We see few real signs of the economy slowing yet though. We remain overweight Japanese equities and are forecasting 1% nominal GDP growth in 2019, the same as the first three quarters of 2018.
2. FLASH: BoE Blocked by Brexit Uncertainty
- The MPC voted unanimously for no policy change in December, as widely expected.
- Near-term GDP growth and inflation forecasts were both trimmed, but the extent may have been exaggerated by missing some recent news.
- Judging the appropriate policy stance was deemed to depend on the data in light of Brexit clarity. That should have occurred in time for a May-19 hike, in my view.
3. FLASH: UK Retail Surges into Christmas 2018
- UK retail sales surged by 1.2% m-o-m in Nov-18, which takes the level well above trend. Black Friday sales helped but discounting is not responsible.
- Sales in December have had a strong positive correlation with November since 2014. I pencil in +0.5% m-o-m before sales normalise lower in the new year.
- The latest rise raises my Nov-18 monthly GDP forecast to 0.2% m-o-m and removes the downside risk to my 0.3% q-o-q forecast for 4Q18.
