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LGT Navigator: Japan Inc. on the road to recovery

July 1, 2021

Japan's economy is recovering from the corona crisis and business confidence among major companies improved to a two-and-a-half-year high in the second quarter, the Bank of Japan's quarterly survey showed. Meanwhile, investors are eagerly watching the further development of the pandemic in terms of the spread of the delta variant. The focus is also already on the US labor market report due on Friday, which significantly influences the monetary policy of the Federal Reserve.

Japan Inc. on the road to recovery

On Wall Street, the broad S&P 500 continued its record run and on the Nasdaq, further highs were quoted. But also, the Dow Jones Industrial showed strength again with a daily gain of +0.61% and ended Tuesday at 34'502.51 points. Looking back at the first half of 2021, the Dow can show a gain of +13%. The S&P 500 closed at 4'297.50 points (+0.13%), gaining about +14% in the first six months of this year.

In Asia, concerns about a further spread of the coronavirus delta variant continue to dominate and even a strong Tankan report failed to significantly brighten the mood on the Tokyo Stock Exchange. The Nikkei 225 index at 28'678.12 points -0.4% lower than the previous day.

Japan – most important Tankan indicator reaches two-and-a-half-year high

Business confidence in Japan improved in the second quarter, with the widely watched Tankan index reaching its highest level since the end of 2018. The most closely watched overall index of sentiment among major manufacturers rose to +14 in June from +5 in March, improving for the fourth consecutive quarter. Sentiment in the services sector also turned positive for the first time in five quarters. According to the Bank of Japan's (BoJ) regular survey, the companies surveyed were confident that they would be able to increase their capital spending in the year that began in April. By contrast, sentiment in the automotive sector deteriorated somewhat due to bottlenecks in semiconductor chips.

Positive indication of further recovery on the US labor market

According to the US labor market service provider Automatic Data Processing (ADP), employment in the US private sector grew strongly in June. According to the report, 692'000 new jobs were created, significantly exceeding expectations of an average of 550'000. The labor market recovery remains robust and the largest gains were seen in service providers, particularly in the leisure and hospitality sector, ADP commented. The monthly report is based on a survey of about 460'000 firms in the US with about 26 million employees and is considered an indicator for the official labor market report to be released on Friday. 

Inflation rate in the euro area declines slightly

In the eurozone, inflationary pressure eased slightly in June. On an annual basis, consumer prices rose by +1.9% last month compared with an inflation rate of +2.0% the month before. Compared to the previous month, consumer prices increased by +0.3%. According to Eurostat, inflation remains mainly driven by energy prices, which increased by around +12% year-on-year in June. Excluding energy and food prices, the core inflation rate was +0.9% after +1.0% in May.

Outlook for Swiss economy remains positive

The monthly economic barometer published by the ETH in Zurich declined by a good 10 points in June to 133.4 but remains at a high level and is still well above its long-term average. Following a sharp rise over the past few months, the leading indicator reached a peak of 143.7 points in May. The economic research unit believes that the outlook for the Swiss economy remains very positive, if it is not severely affected by a renewed spread of the virus.

Economic Indicators July 1

MEZ Country Indicator Last period
08:00 GE Retail Sales (May, y/y) +4.4%
08:30 SZ Consumer Prices (June, y/y) +0.6%
09:15 SP IHS Markit PMI Manufacturing (June) 59.4
09:30 SZ PMI Manufacturing (June) 69.9
09:45 IT IHS Markit PMI Manufacturing (June) 62.3
09:50 FR IHS Markit PMI Manufacturing (June) 59.4
09:55 GE IHS Markit PMI Manufacturing (June) 64.4
10:00 EZ IHS Markit PMI Manufacturing (June) 63.1
10:30 UK IHS Markit PMI Manufacturing (June) 64.2
11:00 EZ Unemployment Rate (May) 8.0%
14:30 US Initial Jobless Claims (weekly) 411,000
15:45 US IHS Markit PMI Manufacturing (June) 62.6
16:00 US ISM PMI Manufacturing (June) 61.2

 

Earnings Calender July 1

Country Company Period
SWE H&M Q3
USA Walgreen Boots Alliance Q3

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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