Japan Closer to Rejoining Recession Club

In the midst of prevalent weakness in the US and Eurozone economies, Japan has become the latest victim of the persistent global depression, as data today revealed that Japan’s GDP contracted for the third quarter, threatening to push the nation once again into a recession. In the US, traders are expected to fix their sights on whether policymakers bridge their differences in tackling the “fiscal cliff”. Today’s meeting of Eurozone finance ministers is expected to offer some clarity over the timing of the release for Greece’s aid tranche. Traders will be closely eyeing UK inflation figures and the BoE Inflation Report for direction on the monetary policy front.

Pound Sterling – UK Markets

The Pound is trading flat against its peers in today’s session, as traders await cues over the stance that the BoE might adopt in the near future. Traders expect tomorrow’s inflation figures to show an uptick, prompting the central bank to admit that inflationary pressure remains a key threat to the British economy. Elsewhere, the labour market report and retail sales figures are expected to provide more clarity regarding the state of economic recovery in the initial phase of the fourth quarter. Although data revealed that the UK’s trade deficit narrowed more than expected for September, Sterling nudged lower against the US Dollar in Friday’s session on account of safe haven buying, as concerns surrounding Europe overshadowed positive cues on the domestic front. In the absence of any major domestic cues in today’s session, traders are expected to closely monitor the Eurozone finance ministers’ meeting for further direction to market risk appetite.

US Dollar – US Markets

The US Dollar is trading flat against the Euro and Sterling in today’s session, as early optimism following the Greek Parliament’s approval of the required set of austerity measures was quickly watered down, after data revealed that the Japanese economy contracted in the third quarter. With worries about the “fiscal cliff” curbing risk appetite among traders some positive signals emerged, elevating hopes that policymakers will come up with some timely action to avert a catastrophe. President Barack Obama has demanded fast action on dealing with the fiscal problems, while a senior Republican senator voiced confidence that policymakers would forge a deal by the year-end. With the labour market showing steady signs of recovery, Friday’s data revealed that consumer morale in the US surged to a five-year high.

Euro – European Markets

The Euro began the weekly session on a strong footing after the Greek Parliament approved the country's 2013 austerity budget, a vital move for unlocking its next loan instalment. However, initial optimism subsided as the German finance minister, Wolfgang Schaeuble, indicated that it is unlikely that Eurozone finance ministers will decide on the disbursement of the aid tranche in today’s meeting. The situation remains precariously poised, as the Greek government has indicated that it would run out of funds on Friday. Earlier today, data revealed that the Japanese economy contracted for the third quarter, heightening the chance of the nation’s economy slipping into a recession. However, upbeat trade data from China has lowered fears surrounding the global economic recovery. Apart from the outcome of today’s Eurozone finance ministers’ meeting, traders are also expected to closely watch tomorrow’s economic sentiment data from Germany for further insights into economic growth in core Eurozone nations.

Other Currencies – Highlights

The Japanese Yen declined against most high yield currencies in today’s session, as data revealed that the Japanese economy contracted for the first time since last year, elevating concerns that slowing global growth and tensions with China could trigger a recession in the world's third largest economy. Additionally, a deflationary trend appears to be persisting, as the domestic corporate goods price index declined at a faster pace than expected for October. Among other major macro releases machine tool orders plunged, while tertiary index unexpected climbed for October. Tomorrow’s industrial production figures are expected to shed more light on the manufacturing situation in Japan. In the midst of evident weakness in the Japanese economy, the Bank of Japan Governor, Masaaki Shirakawa, reiterated that the central bank would continue to pursue monetary easing measures. Meanwhile, with no domestic cues slated for today, the outcome of the meeting between Eurozone policymakers is expected to offer further direction to the Japanese Yen.