Article / 04 August 2016 at 10:41 GMT

Daily Shot: Looking at Japan and UK amid CB decision Team / Saxo Bank
  • UK central bank is expect to cut rates at noon UK time today (1100 GMT)
  • Last Friday the central bank of Japan disappointed markets
  • Japanese equities are the cheapest in 30 years when compared to US equities
By Walter Kurtz*

The Bank of England will come with its rate decision at noon UK time today. We will therefore start with looking at the UK.

1. The nation's services business expectations index is shown below. Ugly. A summary from Markit follows, suggesting a mild recession ahead.
UK Markit
2. As a result of the above, market-implied probability of a BoE rate cut today is 100%. The BoE is effectively forced to cut - otherwise, markets will go into a tailspin. 
BoE rate cut probability
3. Separately, how does a company show a 40% drop in profit and sends its shares surging 5%? HSBC did it by announcing a $2.5 billion share buyback. 
HSBC share

1. Turning to Japan, where the central bank has disappointed markets (see for example yesterday's mid session) the chart below shows household credit growth for major economies. Japan's household credit growth is now above that of the US as the Japanese consumer finally learns to love debt.
Japanese household credit growth
2. What's happening to JGBs?
3. Japanese equities are the cheapest in 30 years when compared to US equities. 
Japanese equities vs US equities
4. Here is the cumulative USDJPY return by three time zones. Note that the yen tends to strengthen (dollar declines) during Japan's trading hours. 
USDJPY return by time zone
5. Here is the percentage of government debt held by central banks. 
government debt held by central banks
Turning to Food for Thought, we have 5 items today:

1. Global population growth and old age proportion projections.
population growth and ageing
2. The US presidential election odds in the betting markets. 
Trump or Clinton?
3. According to Pew, a record percentage of the population is now displaced from their homes. 
displaced persons
4. Distribution of profits from manufacturing an iPhone. 
iPhone and who profits
5. The latest nuclear warhead inventory count (does not include DPRK, i.e. North Korea). 
nuclear warhead count
 — Edited by Clemens Bomsdorf

* Walter Kurtz is an alias

**This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.

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