Even though the week’s 85 data releases generated 22 surprises and 14 shocks, the overall tone was more negative that positive.
Three things stood out.
First, the monthly tally of foreign investment flows into US$ assets continues to defy expectations that the dollar is losing its position as a reserve currency. In the 12m to March, foreign purchase of $ securities rose to a record $1.31tr, with a further $119bn coming in as $ deposits. Yes, those were eroded by $70.7bn in March and $11.5bn in Feb, but that shows only that foreign depositors are no happier with the US banking system than domestic depositors.
Second, I looked at the continued and now quite dramatic erosion of Japan’s Kalecki profits - down 8.1% qoq and down 25.1% yoy in the 12m to March. In nominal terms, these profits have sunk to just 14% of GDP - losing touch with the pre-pandemic l/t average of 20.6%. With profits evaporating like this, it’s difficult to justify TOPIX levels. At the very least, there must be some expectations of a powerful profits recovery in the near future.
Third, China’s April economic data dump told us fairly clearly that the moment China eases up on the credit accelerator, things begin to slow. To summarise, there’s very little evidence of positive cyclical momentum yet. If that means China has to roll back onto net external demand, that’s difficult too: if you take G3 import demand as an indicator, its underlying sequential momentum is now as negative as anything we’ve seen in the last decade (ex the immediate onset of the pandemic).
