JAPAN DATA: Real Household Spending Back Negative In April, Below Forecasts
Japan April household spending was notably weaker than forecast, printing 0.1%y/y in real terms, versus a +1.5% consensus forecast (the March outcome was +2.1%y/y). Note spending was down 1.8%m/m. This outcome continues the recent see-saw y/y pattern for real spending. as we oscillate around flat (the Dec/Jan period we saw back to back positive gains).
- This print comes after yesterday's April labor earnings data, which showed headline outcomes slightly weaker than forecast. We did see scheduled pay (on a same base period) improve further but real earnings remain entrenched in negative territory.
- The chart below plots today's real spending outcome in y/y terms, against real labor earnings. All else equal it is difficult to see a sustained rise in real spending without positive real earnings growth. This remains a key policy focus point.
- In terms of the detail, food spending was 0.3%y/y in real terms, after a -0.7% print in March. The impact of surging rice prices has been noted by officials in terms of its inflationary impact and reducing spending power elsewhere. Fuel, furniture, clothing and medical care all recorded negative y/y prints.
Fig 1: Japan Real Household Spending & Real Labor Earnings - Y/Y
Source: MNI - Market News/Bloomberg
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CNH: Back Under 7.2000 On Trade Talks, Policy Briefing This Morning
USD/CNH saw earlier lows of 7.1892 as headlines crossed that US-China officials would talk in Switzerland on trade later this week. We started the session closer to 7.2100. We have stabilized somewhat since, last near 7.1970. Onshore spot ended yesterday at 7.2190, while the CNY CFETS basket tracker lost 0.25% to be back under 96.00 at the end of Tuesday trade.
- For USD/CNH technicals, we are close to lows from the start of the week at 7.1845. A fresh break lower could see the low 7.1400 region targeted, which we last saw Nov 7/8 in 2024. On the topside, yesterday's highs were at 7.2352, while the 200-day EMA is near 7.2520.
- Focus will be on the upcoming trade talks in Switzerland, with China comments stating it will not sacrifice its principles to seek an agreement (via BBG). China also urged the US side to show sincerity. On Fox News, US Tsy Secretary Bessent stated the talks will be about de-escalation and that current tariff levels are unsustainable.
- Note we may hear more from China officials this morning, as various officials will discuss market stabilization measures at a briefing ((am local time0. BBG notes: "Officials from the People’s Bank of China, the National Financial Regulatory Administration and the China Securities Regulatory Commission will speak at 9 a.m. local time about “a financial policy package to stabilize market and expectations,” according to a government notice on Tuesday."
- The local data calendar just has Apr FX reserves on tap today, which a re expected to rise versus March levels.
AUSSIE BONDS: Richer With US Tsys, Risk-On After US-CH H/Ls
ACGBs (YM +3.0 & XM +2.5) are stronger after US tsys ended mostly richer, reacting to a strong 10-Year note auction. The move was generally across the board, resulting in the yield curve being relatively unchanged (2s10s +0.08 at 50.773).
- After the US close, risk appetite is firmer post-headlines of US-China officials to meet this week to discuss trade issues.
- The FOMC today will be watched closely, MNI Economist - "The FOMC will extend its series of rate holds to a third meeting in May, keeping the Fed funds target rate at 4.25-4.50% while maintaining its forward guidance in the Statement."
- Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +2bps.
- The bills strip has bull-flattened, with pricing flat to +4.
- RBA-dated OIS pricing is slightly softer across meetings today. A 50bp rate cut in May is given a 4% probability, with a cumulative 103bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- Today, the local calendar will see Foreign Reserves data.
- The AOFM plans to sell A$1000mn of the 3.75% 21 April 2037 bond today and A$700mn of the 2.75% 21 November 2029 bond on Friday.
JGBS: Trading To Resume After Long Weekend
In post-Tokyo trade on Friday, JGB futures closed weaker, -15 compared to settlement levels. The local market was closed on Monday and Tuesday this week.
- Overnight, US tsys ended mostly richer, reacting to a strong 10-Year note auction. The move was generally across the board.
- After the US close, risk appetite is firmer post-headlines of US-China officials to meet this week to discuss trade issues. From our policy team: US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will meet with China's "lead representative on economic matters" later this week in Switzerland, according to statements released Tuesday.
- Further headlines have crossed from Bessent stating they will meet with Chinese officials this Saturday and Sunday. US equity futures have firmed, Eminis up by around 0.70%, while Nasdaq futures are +1.00% higher.
- "The Bank of Japan will begin its own corporate wage survey. As the Bank of Japan aims to realize a virtuous cycle in which wages and prices rise together, there is a strong concern that wage increases at small and medium-sized enterprises that do not have labor unions and are not included in the Rengo survey are weak." - Kyodo News via BBG
- Today, the local calendar will see Jibun Bank Composite & Services PMIs alongside BoJ Rinban Operations covering 1-5-year and 25-year+ JGBs.
