Bank of Japan, a fail

• Another Japan policy-response fails to hit the target
• European confidence improves, but at a slower pace
• UK consumer confidence reverses July decline
• Australian data suggests renewed buoyancy
• European issuance taken comfortable so far this week
• US income and spending data broadly in line

The market’s verdict on the Bank of Japan’s decision was pretty clear, with the yen substantially outperforming G10 currencies and being the only currency to strengthen vs. the USD on Monday.  Furthermore, the Nikkei is down 3.5%, with exporters particularly hit on the fear that yen-strength is here to stay.  One of the lessons from Japan over the previous 20 years, and there are many, is that policies, be they monetary or fiscal, rarely have the intended consequence.  We saw that with attempts to recapitalise the banking system in an attempt to get it lending again.  The focus now turns to the government’s fiscal package which is due to be announced at the end of next week.  Fiscal policy also has a pretty chequered history in Japan, most notably with the late ‘90s consumption tax-hike which de-railed the fragile recovery.  For now, markets are not prepared to give the government the benefit of the doubt...Read More

The UK consumer is doing very nicely

• Growth concerns gnaw away at the dollar
• Kan ratchets up the pressure on the BOJ over the economy and the yen
• CHF: the preferred safe haven currency
• UK retailers continue to report very strong sales
• German consumer confidence jumps in August
• Italian consumer confidence falls to a one year low
• Bernanke speaks on the economy at 14:00 GMT

Amidst the doom and gloom being expressed about the UK’s economic prospects, the latest survey by the CBI showed that UK retailers continue to report very decent sales. The net balance for the volume of sales in August was well above expectations at +35, a three year high, from +33 in the previous month. Retail orders were the highest since 1994, while clothing sales were the highest since 1988! According to the survey, retailers expect sales to remain strong in the months ahead. Wholesalers likewise are more optimistic than they have been for some time, but motor traders are less hopeful. Interestingly, retailers are reporting higher prices as well – the CBI’s measure of average selling prices rose to +58 in the three months to August (an 18yr high) from +49 in the period to May. Looking forward, there are some uncertainties for retailers, including the VAT hike next year, the sluggish pace of real income growth, concerns over falling house prices and the impact of savage public spending cuts. Where is this growth coming from? A couple of potential explanations – firstly, staycations have been much more common this summer, so UK consumers are spending more at home than usual, and secondly foreigners visiting the UK on holiday (and taking advantage of the cheap pound) have also been higher than usual...Read More

Retail sales in the euro area remained unchanged in June

The volume of retail trade in the euro area remained unchanged in June because of falling sales of food and beverages.

Published data show a decline in consumer spending, which could adversely affect the economic recovery.

Compared with the same period last year, retail sales in the euro area rose by 0.4%, surpassing expectations.

Economists forecast a rise of retail sales at 0.1% in June and 0,1% in annual terms.