Thursday, 6 June 2013

Japanese stocks plunge again as Abe fails to provide details of growth strategy

Japanese Prime Minister Shinzo Abe announced the objectives of his planned economic reforms on Wednesday. These include increasing incomes by 3 percent annually, allowing tax cuts and reducing red tape in special economic zones.

However, he did not provide details of how those objectives will be achieved.

Investors appear to be unimpressed with Abe's announcement. Japanese stocks plunged 3.8 percent on Wednesday, pulling the rest of Asia down.

Western markets were not spared. The S&P 500 fell 1.4 percent to a one-month low while the STOXX Europe 600 fell 1.5 percent to the lowest level in six weeks.

Economic data on Wednesday were mixed.

China's services sector continued to expand in May. The HSBC/Markit services PMI rose to 51.2 from 51.1 in April.

The eurozone services sector PMI also improved in May, rising to 47.2 from 47.0 in April. This helped push the composite index up to 47.7 in May from 46.9 in the prior month.

This still means that the eurozone economy probably continued to contract in the second quarter, after having contracted 0.2 percent in the first, especially since another report on Wednesday showed that eurozone retail sales fell 0.5 percent in April.

In contrast, the US economy continued to show signs of expansion based on reports on Wednesday.

The Federal Reserve's latest Beige Book described growth as “modest to moderate”, ADP reported that private employers added 135,000 jobs in May and the Institute for Supply Management reported that its services index edged up to 53.7 last month from 53.1 in April.

New orders for manufactured goods increased 1.0 percent in April, rebounding partially from March's 4.7 percent decline.

The UK economy also added to signs of recovery on Wednesday. The services PMI rose to 54.9 in May from 52.9 in April. The composite index rose to 54.3 in May, the highest since March 2012.

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