US: Trump Speech To The Nation Coming Up

Japan core machine orders for Apr were better than forecast. In m/m terms we rose 8.7%, against a 0.5% forecast and -9.4% Mar outcome. In y/y terms we rose 15.6%, against a 8.7% forecast and prior outcome of 5.9%.  At face value this is a positive start for Capex trends in the first part of Q2. The chart below plots the core machine orders y/y, versus Capex y/y (ex software). If the better machine order trend holds for Q2 it does point to a capex rebound. This would be consistent with a still supportive external backdrop, as other data showed exports up 17%y/y for May, while the manufacturing PMI has also stayed elevated through Q2 to date. 

• Rtrs also noted earlier that its Tankan survey measure rose to +13 in June versus +8 in May. Chip related orders reportedly surged.
• In terms of the detail on the machine orders print today, manufacturing rose 5.1%m/m, to be 12.9% higher y/y. Non-manufacturing also posted solid m/m and y/y gains. 

Fig 1: Japan Core Machine Orders Y/Y (White Line) & Capex, Ex Software Y/Y (Orange Line). 

Source: Bloomberg Finance L.P/MNI 

Westpac consumer confidence fell sharply in Q2 to 80.4 from Q1’s 94.7, the lowest since Q3 2023. Geopolitical uncertainty weighed on sentiment but cost-of-living pressures are a major concern, exacerbated by higher fuel prices. Also wholesale rates have increased mortgage costs before the RBNZ actually tightens. Sentiment suggests a slowing of private consumption growth in Q2 but card transactions are holding up.

• If the reopening of the Strait of Hormuz, expected on Friday, is sustained and a long-term US-Iran deal can be reached, then households may see some relief - retail fuel prices are already lower. Other input costs would also likely fall, such as fertiliser. Therefore, the RBNZ may not have to hike rates as much as feared. It will take time though for the benefits to be felt from free shipping.
• There was a decline in all components with present conditions down to 73.5 from 87.9 and expectations 85.0 from 99.2. The economic outlook and current & future finances all deteriorated.
• Westpac notes that its consumer survey was taken in the first two weeks of June before the announcement of the memorandum of understanding between the US and Iran. It’s possible that respondents felt that a deal to reopen Hormuz was unlikely especially as the US-Iran-Israel had resumed hostilities.

Westpac consumer sentiment vs private consumption growth

Source: MNI - Market News/LSEG

• MNI JAPAN APRIL CORE MACHINE ORDERS +8.7% M/M; MAR -9.4%
• JAPAN APRIL MACHINE ORDERS POST 1ST M/M RISE IN 2 MONTHS