Chart of the Week: Japan machine tool orders
Head of Macro Analysis
Summary: A steep decline in a generally reliable Japanese economic indicator, as well as a drop in wider Asian exports, are bad omens for the prospects of the global economy.
Japan machine tool orders is an old school business cycle indicator that is very useful to give a sense of the state of the global economy. Since early 2018, orders have gone through a sharp collapse due to increasing risks to global trade growth. The contraction is now deeper than in 2016, with orders falling 33% YoY in April, which is consistent with levels reached in 2009 during the GFC. Over the same period, Japanese exports were down minus 2.4% YoY for the fifth consecutive month of decline.
The latest Asian export data covering the month of May tend to indicate the contraction is likely to continue in coming months. South Korean exports over the first 20 days of May were down 11.7% YoY, suggesting there is not V-shaped recovery in sight for global trade. As the US-China conflict intensifies and buyers remains very cautious, Japanese machine tool makers and all Asian export-oriented companies will be pushed to rethink their investment plans and probably cut jobs.
In our view, this is confirmation that we are in a period of “false stabilisation” and that growth will continue to further slow down in coming quarters as the risks are mounting.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.