The Week In Hindsight, 20 June 2014

The NIKKEI followed global indices higher last week as ongoing under performance in US economic data led equity investors to bet on a prolonged period of stimulus from the Federal Reserve. The week also saw Janet Yellen revise downward expectations for US growth this year, while BOJ Governor Haruhiko Kuroda sounded a cautious tone when speaking at the National Association of Shinkin Banks gathering in Tokyo.

The governor stated that the BOJ would continue to monitor both upside and downside risks to the economy and that policy makers were conscious of the recent drop in demand following the sales tax increase in April. The comments came just days after the release of export data which showed outward shipments from the nation falling by 2.7% during the previous month.

Despite some near term concerns, the overall policy outlook continues to have positive connotations for equity markets. This is as the BOJ “stands ready to act in the event of a deterioration in our assessment of the economy”, while monetary policy remains on a loose setting throughout other developed markets. Consequently, we continue to see further upside for the NIKKEI over the months ahead. 

Going forward, inflation, earnings growth, consumption and employment figures are likely to remain the key areas of focus for both policy makers and investors.

As a result, Thursday looks set to be the main event for the week when CPI, household spending and retail sales figures are all released. In addition to this, US economic data along with developments across conflict areas such as Iraq and Eastern Europe are also likely to play a role in the direction of trading.