Japan suffers from slowing exports and rising consumer prices.
Courtesy of Danske Bank
From the Economist, ``According to data released by the government's Cabinet Office on August 13th, seasonally adjusted real GDP contracted by 0.6% quarter on quarter in the three months to June. As the new data also revise down first-quarter growth, from 1% to 0.8%, the economy's performance in the second quarter looks especially weak. In annualised terms, GDP contracted by 2.4% in the quarter to June. Japanese national-accounts data are revised frequently, so the picture may change as further data releases come out later in the year…
``This reflects the increasing impact on Japan of the various headwinds from the global economy—including weakening demand in export markets, high oil and food prices, and the continuing fallout from the US sub-prime crisis…
And it is the same for the Eurozone…
Courtesy of the Economist
From the Economist, ``Europe is struggling to stay above water. Figures released on Thursday August 14th showed that the euro-area economy shrank at an annualised rate of 0.8% in the second quarter, the first such reverse since 2001. Nor are things likely to improve soon. A closely watched survey of purchasing managers in manufacturing and services slumped in July to its lowest level since 2001. Business confidence has turned down sharply in all of the three biggest economies in the euro area: Germany, France and Italy…
``The economy’s downward lurch puts the ECB in an awkward spot. It raised its main interest rate to 4.25% on July 3rd to show that it was serious about controlling inflation, which is well above its target ceiling of 2%. The rate-setters’ fear was that inflation would persist if firms and households used today’s rate as a benchmark for future wages and prices. They are right to worry. In Italy and Spain, wage growth is picking up even as unemployment rises, because of contract clauses allowing workers to be compensated for higher-than-expected inflation.”
Courtesy of stockcharts.com
With the Europe’s Stoxx 50 and Japan’s Nikkei down 27% and 28% as of August 15th, the markets may have already factored in or reflected the GIST of these downside adjustments, in my view.
In the context of Japan’s Nikkei, this observation of Darrel Whitten of Japaninvestors.com should articulate today’s development (highlight mine),
``Excluding the current recession, the 12 prior cycles included recessions that lasted an average of 13~14 months. This implies that Japan’s recession could linger into 2010. Moreover, as the Nikkei 225 has bottomed on average some seven months ahead of these recessions, a bottom in the Nikkei 225 probably won’t be confirmed until Q2 of 2009 or later.
``The good news however is that the Nikkei 225 has already discounted the bulk of the unfolding recession, as it already fell some 29% from a February 2007 high, and is now only about 6% away from what has historically been a post-recession trough (i.e., a 30% peak-to-trough correction). Of course, the previous three pre-recession bear markets involved peak-to-trough corrections of 40%~50%, but this was within the context of the Heisei secular deflation bear market, which we do not believe applies in this case.”
…unless of course, if the deflation conditions in the US and parts of the Europe gorges on the world economy and markets, a scenario we don’t think is likely.
