Daily Commentary

MarketMinder’s View: Japan’s core inflation, which excludes fresh food prices, rose 3.5% y/y in April, heating up from March’s 3.2% and topping analysts’ expectations. (For reference, headline inflation rose 3.6% y/y, repeating March’s rate.) Unsurprisingly, surging rice prices—not classified as fresh food and currently dominating headlines in the country—contributed to hotter inflation rates. “Rice prices in Japan have doubled over the year. The average price in 1,000 supermarkets across the country reportedly continued to hit record highs, with prices for a 5-kilogram bag of rice hiking by 54 yen from the previous week to 4,268 yen ($29.63) as of May 11.” That rice-flation (sorry) is likely skewing April’s results to a degree, though energy prices (9.3% y/y) were also a factor. The experts here anticipate core inflation to ease in the coming months, but rice prices are likely to remain higher for the foreseeable future. The combination of poor weather hitting last year’s harvests, Japan’s long-running protectionist policies putting a lid on supply and hot demand (due in part to the influx of tourist) have driven the food staple’s price up. Besides a headwind for households, the primary fallout is mostly political, especially since Prime Minister Shigeru Ishiba has staked his job on getting prices down. Separately, we would look past the Bank of Japan (BoJ) speculation near the end here. It is impossible to know how the government’s pledges to lower rice prices or global oil market developments will affect Japan’s broader inflation gauges, nor can anyone know how BoJ officials will digest all of this.

MarketMinder’s View: Germany’s statistics office revised Q1 GDP growth up from 0.2% q/q to 0.4%, effectively upgrading the result from “met expectations” to “doubled expectations.” Not bad for Europe’s current “sick man,” where sentiment has been in the doldrums for years. The bulk of the revision came from manufacturing output and exports—key facets of Germany’s economy—registering stronger growth than originally estimated in March. This piece questions (fairly, in our view) whether this strength will continue, or if it is largely due to companies’ front-running tariffs, potentially leaving a pothole in Q2 growth. The latter is certainly possible. However, recent data from other corners of the globe suggest tariffs have yet to clobber trade, and German stocks’ floating near all-time highs suggests markets don’t see any economic wallops looming. Thus, the skepticism here indicates sentiment toward Germany remains cool. A counterintuitive positive, in our view, as it keeps the bar of expectations low for stocks, raising the likelihood a less-bad reality can positively surprise.

MarketMinder’s View: Our neighbors to the north are the latest to see tariff-related doom and gloom weighing on economic forecasts. “Economists surveyed by Bloomberg say output will shrink 1% on an annualized basis in the second quarter and 0.1% in the third quarter, a technical recession.” Their reasoning? Tariffs will crush Canadian exports, trade disputes will smother labor markets—and, hence, household consumption—as hot inflation returns (no reason listed why, but we assume tariff-related costs). Perhaps, but forecasts like this aren’t predictive of actual economic outcomes. They are more a snapshot into current or recent sentiment, and similar polls have pointed to persistent negativity since “Liberation Day.” Prime Minister Mark Carney’s election win seemed to moderate this some, but this outlook suggests to us moods toward Canada’s economy remain gloomy—worth keeping in mind when comparing to reality.