Finimize - 🇯🇵 Watch out, Japan

What’s going on here?

Tokyo’s inflation picked up in August, which could give the Bank of Japan (BoJ) a poke in the ribs.

What does this mean?

Changeable fresh food aside, Tokyo’s prices rose by a higher-than-expected 2.4% in August, more than the 2.2% notched in July. And because the capital tends to set the tone for the country as a whole, those figures could foreshadow Japan’s September inflation report. But it seems the country’s economy might be straining already: the unemployment rate nudged up to 2.7% in July, retail sales slowed down to barely outpace inflation, and factory output grew by 2.8% – well short of the 3.5% forecast.

Why should I care?

For markets: Once bitten, twice shy.

The BoJ has hinted that it might hike interest rates for the second time this year, but the central bank won’t take that decision lightly. If borrowing costs get too high too fast, shoppers will hold back in the stores – and that would weigh on the economy. Plus, higher rates tend to buoy up a country’s currency. That would, in turn, make Japanese exports look more expensive, potentially putting international buyers off. And don’t forget that the BoJ’s recent hike triggered a panicked $6.4 trillion stock selloff across global markets. So, wary of another financial freakout, the central bank could keep rates steady for longer.

The bigger picture: A shot in the arm.

Japan’s stock market was left battered and bruised after the selloff. And since then, the Topix pharmaceutical index has been the only one to hit a fresh record high. That makes sense: pharmaceutical companies tend to be more resilient when the economy catches a cold – and not just thanks to their hefty vitamin C inventories. Although, while investors have been flocking to the sector for a sense of security, they could be quick to cash out when the Japanese stock market picks back up.

What’s going on here?

The Pan-European Stoxx 600 index notched a record high on Friday, leaving it sitting nearly 10% higher than it started the year.

What does this mean?

The broad index includes 600 firms of different sizes from across 17 European countries. And it’s been rising for four straight weeks – the longest run since March. See, despite Europe’s tepid economy, the region is home to world-leading tech and healthcare companies that make a chunk of their money abroad. That includes Novo Nordisk and ASML: the weight-loss-drug manufacturer’s share price has steamed ahead by 42% this year, while the chipmaking equipment firm has seen its stock rise 22%. But at the same time, companies that rely on China for profit are lagging – think luxury firms like LVMH and carmakers like BMW and Volkswagen.

Why should I care?

For markets: Let’s get down.

Inflation in the eurozone fell to a three-year low of 2.2% in August, easily below July’s reading of 2.6%. And it’s not just in Europe, either: the Federal Reserve’s favorite inflation measure was in line with expectations in August, showing that US inflation is relatively subdued. Remember, lower inflation could encourage central banks to cut interest rates. That wouldn’t just make it cheaper for companies to invest in themselves, lower rates also increase stock valuations.

The bigger picture: Calling Doctor Copper.

Lower interest rates and a healthier economy could fire up industries. And plenty of them would stock up on copper, stat: the metal’s essential for a long line of processes – so much so that it’s known as Doctor Copper, skilled at reflecting the state of the economy. It may seem reassuring, then, that the metal’s price hit a six-week high this week. But there’s no such thing as a sure bet: the shiny stuff’s price tumbled not long ago, with investors wary of dried-up demand from China, which usually buys around 50% of the world’s copper.