Market Outlook - BNP PARIBAS - Investment Services India

Key Data Preview
Chart 3: Japanese Production and Exports
120
115
110
105
100
95
90
85
80
75
70
65
(2005=100, seasonally adjusted)
00 01 02 03 04 05 06 07 08 09
Source: METI, BNP Paribas
Production
Exports (RHS)
150
140
130
120
110
100
90
80
70
60
50
Dec (f) Nov Oct Sep
IP % m/m 3.0 2.2 0.5 2.1
IP % y/y 6.5 -4.2 -15.1 -18.4
Key Point:
Solid exports to the rest of Asia will keep production
on a recovery track for the time being, moderating
the “soft patch” expected in the first half of 2010,
when the economy is likely to lose some momentum.
BNP Paribas Forecast: Recovery Continues
Japan: Industrial Production (December)
Release Date: Friday 29 January
We expect industrial production to expand by 3.0% m/m in
December, the tenth straight month of increase. With the
forecast index projecting gains of 3.4% in December and
1.3% in January, the recovery in the industrial sector looks
likely to continue for the time being, reflecting the effects of
the domestic fiscal stimulus (subsidies for buying ecofriendly
cars and household appliances), coupled with
robust exports to the rest of Asia. Thanks to expansionary
policies by many Asian nations, coupled with dollar-buying
FX intervention to stem local currency appreciation from
capital inflows linked to an increase in dollar-carry trades,
monetary conditions elsewhere in Asia have become
extremely accommodative. This is leading to a robust
recovery in domestic demand. While the soundness of
such growth is questionable, the Asian economies will
probably continue to perform strongly for some time,
maintaining the strength of Japanese exports and
production. Thus, even though the domestic economy is
expected to lose some momentum in the first half of 2010
as the effects of the inventory cycle and domestic fiscal
stimulus start to fade, the solid tone of exports to Asia
should allow the coming economic “soft patch” to be mild.
Chart 4: Eurozone M3 & Bank Lending (% y/y)
12.5
10.0
7.5
5.0
2.5
0.0
Private Sector Bank Lending
-2.5
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Reuters EcoWin Pro
% y/y Dec (f) Nov Oct Sep
M3 -0.4 -0.2 0.3 1.8
M3 (3-mth Avg.) -0.1 0.6 1.6 2.5
Private Sector Loans -0.1 -0.7 -0.8 -0.3
Key Point:
The y/y rates of change in M3 and bank lending are
forecast to remain negative in December, although
they should be bottoming out.
M3
BNP Paribas Forecast: Double Negative
Eurozone: Monetary Developments (December)
Release Date: Friday 29 January
The y/y rate of change in M3 fell below zero in November
for the first time in the series’ history. In each of the three
months to November, M3 declined on a m/m basis so the
weakness is not a ‘base effect’ distortion. We forecast a
deepening of the y/y contraction in December, pushing the
three-month moving average y/y rate of change below zero
for the first time ever.
The divergence between narrow and broad money growth
remains acute, with the y/y rate of increase in M1 in double
digits in November for the fifth straight month. The y/y rate
of change in M3 less M2 is in double digits in a negative
direction, with the steepness of the yield curve encouraging
purchases of longer-term assets outside of M3.
The y/y rate of change in bank lending to the private sector
has been negative since September. We forecast that it will
remain negative in December but, due to base effects, the
rate of contraction will diminish markedly and a shift into
positive territory is likely by end-Q1 at the latest.
Loan growth to households has continued to pick up, which
may in part relate to car purchase incentives. The lending
data for non-financial corporates are still exceptionally
weak, however, with outstanding loans contracting by
almost 5% on a six-month annualised basis in November.
Market Economics 29 January 2010
Market Mover
57
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