Japan's service sector sentiment rises to highest in over three decades

Investing.com -- U.S. employment data on Friday will be the main highlight of this week’s economic calendar amid hopes the economy is on course for a soft landing. The second quarter gets underway after a stellar performance for stocks in Q1. The yen and the yuan remain on intervention watch while data out of the Eurozone and China will be closely watched. Here’s what you need to know to start your week.

Nonfarm payrolls

Friday’s jobs report will be in the spotlight amid investor confidence that the economy is set for a "soft landing", in which inflation moderates but the economy avoids a severe downturn.

The U.S. economy is expected to have added 205,000 jobs in March, slowing from the 275,000 jobs added in February.

Hopes for a "soft landing" for the economy were boosted after the Fed at its March meeting stuck to its view of three rate cuts this year while upgrading its outlook for economic growth.

Ahead of the jobs data, investors will also get a chance to hear from several Fed officials including Fed Chair Jerome Powell on Wednesday. Among others due to make appearances are New York Fed President John Williams, San Francisco Fed head Mary Daly and Richmond Fed head Thomas Barkin.

Q2 kicks off

The U.S. stock market has had a strong start to the year, boosted by optimism over artificial intelligence related stocks and expectations the Fed will begin to cut interest rates this year.

Each of the three main U.S. indexes recorded solid quarterly gains, led by a climb of over 10% for the S&P 500 for its biggest first-quarter gain since 2019.

Whether that rally continues into the second quarter is largely down to the Fed. At the start of the year markets had been expecting six rate cuts from the Fed – now just three are priced in and officials have not yet signalled that inflation has come down enough to justify a rate cut.

Continued strong momentum will also depend on corporate earnings which get underway in earnest the second week in April.

Intervention watch

Monetary authorities in Japan and China are on high alert as their currencies weaken past levels that they've been defending for months, largely thanks to the strong dollar.

With the yen faltering towards the 152 per dollar level and the yuan struggling to break above the stronger side of 7.2 per dollar, officials have stepped up efforts to bolster their currencies.

In Japan, that means verbal warnings, while in China it has been state banks buying yuan and selling dollars.

Given how much the two big Asian currencies have fallen, there's a growing school of thought that Beijing could have grown more tolerant of a weak yuan to maintain its competitive edge against the yen but it’s hard to say what’s next.

Eurozone inflation

The Eurozone is to release flash inflation data for March on Wednesday that will be closely watched amid speculation that the European Central Bank is gearing up to cut rates in June.

Inflation in the euro area remained high since the start of the year and needs to fall further to allow the ECB to deliver a summer rate cut, making the next three inflation reports key for markets (and the ECB).

If inflation surprises to the upside, rate cut bets will be pushed out.

Speaking Saturday, ECB Governing Council member Robert Holzmann said it could lower its key interest rate before the Fed, noting that the European economy was growing more slowly than its U.S. counterpart.

China data

China's manufacturing activity expanded for the first time in six months in March, according to official data published on Sunday, offering relief to policymakers even as a crisis in the property sector remains a drag on the economy and confidence.

Expectations are for Monday’s Caixin manufacturing PMI to show a slight expansion, likely continuing its divergence with the official reading - overall offering a mixed outlook for the world's No.2 economy.

Policymakers have wrestled with persistent economic sluggishness since the abandonment of COVID curbs in late 2022, amid a deepening housing crisis, mounting local government debts and weakening global demand.

(Reuters contributed reporting)

By Cynthia Kim and Jihoon Lee

SEOUL (Reuters) - South Korea is launching a high-speed train service that will reduce the travel time between central Seoul and its outskirts, a project officials hope will encourage more youth to consider homes outside the city, and start having babies.

South Korea has the world's lowest fertility rate, and its youth have often cited long commutes and cramped, expensive housing in greater Seoul, home to about half the population, as the main reasons for not getting married and starting a family.

The birth rate in Seoul is even lower than the national average, and the government has tried to boost the number of newborns through subsidies, with little success.

Officials are now pinning their hopes on the Great Train eXpress (GTX), a 134 trillion won ($99.5 billion) underground speedtrain project that, by 2035, will provide six lines linking Seoul to several outlying areas.

On Friday, President Yoon Suk Yeol inaugurated a section of the first line, which will cut the commute time from Suseo in capital to the satellite city of Dongtan to 19 minutes from 80 minutes now on a bus.

The shorter commute "will enable people to spend more time with their family in the mornings and evenings," he added.

The line is due to go into service on Saturday, and once fully operational, the GTX will be one of the fastest underground systems in the world, with trains travelling at speeds of up to 180 km per hour (112 mph), officials said.

Owning a home in South Korea is costly, with median prices hitting a peak in June 2021 after rising 45% over five years. Seoul is particularly expensive, offering some of the worst value for money per square foot of any advanced economy, analysts say.

Land Minister Park Sang-woo told Reuters the GTX would allow young people to consider homes far away from the capital without having to spend hours commuting. The time they get back can go towards their families, he added.

"With two-hour commute on the way home, for example, how can anyone make time for babies? The idea is to give people more leisure time after work," he said.

Some analysts, however, said the GTX could contribute to the decline of rural South Korea, by sucking more people into the already overcrowded capital.

"To revive regional towns facing extinction, the most important thing is to equip other areas with a similar kind of public infrastructure too," said Kim Jin-yoo, professor of Urban Planning & Transportation Engineering at Kyonggi University.

WASHINGTON (Reuters) - The United States will partner with Mexico to explore semiconductor supply chain opportunities, the State Department said on Thursday, as the Biden administration pushes to reduce reliance on China and Taiwan for the technology.

The collaboration will take place as part of the U.S. CHIPS Act, a 2022 law that created a $500 million fund for developing the semiconductor supply chain through initiatives with allies and partners.

"Manufacturing of essential products ranging from vehicles to medical devices relies on the strength and resilience of the semiconductor supply chain," the department said in a statement. 

The partnership will begin with an assessment of Mexico's existing semiconductor industry, regulatory framework and workforce needs, the department added.

Mexico's economic ministry did not immediately respond to a request for comment on the State Department's announcement.

BOAO, China， (Reuters) - China will make it easier to move capital in and out of the country and promote financial market deregulation, a senior forex regulator said on Friday, as Beijing seeks to woo foreign investors amid heightened geopolitical tensions.

"We will steadily push forward two-way capital market opening, and strengthen the connectivity between domestic and overseas financial markets," Xu Zhibin, deputy head of the State Administration of Foreign Exchange (SAFE), said at the annual Boao forum for Asia.

"We will expand the variety and scope of investments to attract more investors to invest in China's financial markets."

Xu also vowed to support high-quality Chinese companies to sell shares and bonds in overseas markets, and encourage sovereign wealth funds and other institutional investors to invest offshore "in an orderly manner."

Many global investors have left, or diversified away from China over the past few years, amid concerns over China's economic health, policy orientations, and Sino-U.S. tensions.

Meanwhile, overseas listings by Chinese companies have slumped, thanks to tighter scrutiny over national and data security by both Chinese and Western governments.

By Leika Kihara

TOKYO (Reuters) -Core inflation in Japan's capital slowed in March and factory output unexpectedly slid in the previous month, heightening uncertainty on how soon the Bank of Japan can raise interest rates again after exiting its radical monetary stimulus.

Core consumer price index (CPI) in Tokyo, an early indicator of nationwide figures, rose 2.4% in March from a year earlier, matching a median market forecast and slowing slightly from a 2.5% gain in February.

A separate index that excludes the effect of both fresh food and fuel costs, viewed as a broader price trend indicator, also showed inflation slowing to 2.9% in March from 3.1% in February, data showed on Friday.

While core inflation is still above the central bank's 2% target, the slowdown underscores how price pressures in Japan are still predominantly coming from raw material costs rather than robust domestic demand.

Separate data showed on Friday Japan's factory output unexpectedly fell by 0.1% in February from the previous month, against a median market forecast for a 1.4% rise.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect seasonally adjusted output to increase 4.9% in March and rise 3.3% in April, the data showed.

The data may point to caution at the BOJ in implementing further interest rate hikes, after ending an eight-year negative interest rate policy last week.

The BOJ has said its decision to end negative rates last week was driven by signs that robust demand and the prospect of higher wages were prodding firms to keep hiking prices for both goods and services.

BOJ Governor Kazuo Ueda has said the central bank could hike rates again if inflation overshoots expectations or upside risks to the price outlook heighten significantly.

Big firms have offered bumper pay hikes in this year's annual wage negotiations, heightening the prospect that Japan will see inflation sustained around the BOJ's 2% target.

But consumption has showed signs of weakness as rising living costs hit households, casting doubt on the strength of Japan's economy.

Factory output also remains weak due to production and shipment disruption at Toyota Motor (NYSE:TM) and its small-car unit, which could weigh on the broader economy due to their huge presence in Japan's manufacturing sector.

Japan's economy expanded an annualised 0.4% in the final quarter of last year, narrowly averting a technical recession as robust capital expenditure offset weaknesses in consumption.

By Karen Freifeld and Alexandra Alper

WASHINGTON (Reuters) -The United States is drawing up a list of advanced Chinese chipmaking factories barred from receiving key tools, three people familiar with matter said on Thursday, to make it easier for companies to stem technology flows into China.

The list could be released in the next couple of months, one of the people said.

The commerce department in 2022 barred U.S. companies from shipping equipment to Chinese factories producing advanced chips, as the U.S. seeks to severely limit Beijing's technological advances over national security concerns.

But companies say it is difficult to pinpoint which factories in China produce advanced chips and have long urged the commerce department to publish a list.

The effort shows the United States is taking pains to strengthen its existing chips restrictions on China by making it easier for U.S. firms to comply with restrictions.

The commerce department declined to comment.

A spokesperson for the Chinese Embassy in Washington said the U.S. should "stop overstretching the concept of national security and abusing the state power to suppress Chinese companies."

U.S. officials addressed requests from companies for a list at an annual export controls conference in Washington this week.

"People are like: 'Please, just tell us which are these advanced [factories] that you really care about,'" said one official, who spoke on a panel.

"It’s probably not going to be an exhaustive listing, if we can do that. But the more that we can help identify what are these facilities that we have a concern with, hopefully that’s going to help," the official added.

By Sarah Young

NEAR LONDON (Reuters) -In an anonymous warehouse in southern England, engineers at Evolve Dynamics are working on technology that could help keep Ukraine's reconnaissance drones in the sky even after Russia tries to jam them electronically.

It is a small but important part of an international effort by Ukraine's allies to support its drone programme, which Kyiv hopes will give it the edge over a much larger enemy with many more resources at its disposal.

Companies in dozens of countries have supplied drones and drone parts to Ukraine. Some, like Evolve Dynamics, are also focusing on technological advances designed to counter Russia's powerful electronic warfare (EW) capabilities.

By developing alternative radio link algorithms, it aims to make it harder for Russia to jam the signal from its surveillance drones, rendering them useless.

Both sides have bolstered deployment of EW systems, which can disrupt the frequencies that feed commands from the pilot to the drone, making them drop out of the sky or miss their target.

"It's a constant ping-pong game between adversaries," said Mike Dewhirst, chief executive of Evolve Dynamics, who estimates there have been 85 upgrades made to the company's Sky Mantis drones over the last two-and-a-half years.

Britain, a staunch ally of Kyiv since Russia launched its full-scale invasion in February 2022, said it was the largest supplier of drones to Ukraine, and is working with Latvia to lead a European coalition to step up production.

Other allies, such as Sweden, the Netherlands and Norway, have also provided Ukraine with combat drones.

Ukraine has nurtured its own private military startups to innovate and build up their domestic industry as the war enters its third year.

In total, there are now about 200 dronemakers in Ukraine and the Strategic Industries Ministry has said the country could make as many as 2 million drones this year.

With Evolve Dynamics, whose reconnaissance drones in Ukraine spy on enemy movements, military units receive parts and software updates directly from the company, allowing them, where possible, to make the changes themselves.

"We're adding technology to existing drones, modifying them. It might be a software change, a hardware change," Dewhirst said.

RAPID CHANGES ON THE BATTLEFIELD

Some military experts said immediate communication between defence companies and soldiers may become a more common feature of warfare given the rapid technological innovation.

The trend could have implications for everything from procurement to training.

"The technology is moving very quickly. I would say maybe a six week learning cycle on the battlefield," said Nick Reynolds, Research Fellow in Land Warfare at the Royal United Services Institute (RUSI), a UK-based defence think-tank.

"Our procurement systems are not optimised for this."

Last month, a military unit in Ukraine asked Evolve Dynamics to make changes to its technology to make it safer for the pilot.

Working at the British site adorned with Ukrainian flags and messages of thanks from soldiers, staff worked out how to separate a drone's radio box from its control.

Having sent instructions, the military unit were able to adopt the change within 24 hours of the request.

Dewhirst, who travels to Ukraine each month, decided to fund the modification after hearing soldiers were going to pay for it themselves. Drone units in Ukraine often pay for their own equipment through private means or crowd-funding.

Dewhirst founded the company in 2014 when he was working with software engineers in Kyiv for a digital marketing start-up.

Evolve Dynamics now has about 100 Sky Mantis surveillance drones flying in Ukraine, making it one of between five and 10 British significant suppliers of drones to Ukraine, the company said.

Britain has pledged to spend 325 million pounds ($416 million) to send 10,000 drones to Ukraine this year, and Evolve Dynamics hopes to win more of that work.

The privately owned company has supplied Britain's Royal Navy and some police forces, along with global oil and gas and wind turbine companies.

($1 = 0.7813 pounds)

By Scott Murdoch

SYDNEY (Reuters) - India's bulging pipeline of large block trades and listings such as the $3 billion IPO of Hyundai Motor (OTC:HYMTF)'s unit will draw more funds to a market whose share of global equity capital market deals has already hit a record this year, bankers said.

A paucity of deals elsewhere in Asia will add to the impetus for capital flows into India, they added.

Higher global interest rates, geopolitical tensions as well as China's economic slowdown and its move to restrict initial public offerings (IPOs) to support its secondary markets have led to a slump in equity dealmaking across Asia.

India, on the other hand, has emerged as the second busiest market in the world for equity capital market (ECM) deals after the United States.

Indian companies raised $2.3 billion in the first quarter of 2024 in IPOs, according to LSEG data, up more than 12 times the $166.5 million raised in the same period last year, the data showed.

Total ECM deals rose 139%, making it the most active market across Asia Pacific, including Japan, where activity was down 46.8%, and accounted for 10.05% of the global total in the first three months, a record high.

"The pipeline and activity level has never been as big or as busy. We are seeing many more billion dollar-plus transactions, it's unbelievable," said Rahul Saraf, Citigroup's India head of investment banking.

"India is really coming of age in the size, scale and quality of issuers."

The National Stock Exchange, the country's largest bourse, was the third most active listing venue globally in the first quarter, behind the New York Stock Exchange and Nasdaq.

"If you look at global liquidity, where would a large family office or global fund like to put money in the current environment? It’s most likely between the US, India and Japan," said Saraf.

Among the large deals in the pipeline, the listing of South Korean automaker Hyundai Motor's India unit is on track to be the country's largest ever IPO as it aims to raise up to $3 billion in 2024 in a deal that would value the car marker at up to $30 billion.

Budget supermarket chain Vishal Mega Mart is also planning a $1 billion IPO that would value the company at up to $5 billion.

"In terms of upcoming deals ... the size of the deals is getting larger and more companies are lining up for listing later in the year, once elections are out of the way," said Sumeet Singh, Aequitas Research director who publishes on Smartkarma.

India's general elections will be held over almost seven weeks from April 19.

Citigroup heads the league table for Indian ECM activity, according to LSEG, ahead of Bank of America and ICICI Bank.

By Brigid Riley

TOKYO (Reuters) - The U.S. dollar received a boost against major currency peers on Thursday, as a Federal Reserve official said he wasn't in a hurry to cut rates amid sticky inflation, and as traders braced for key economic data.

Meanwhile, although still not far from the 152 mark, the yen was holding its ground against the greenback after Japan's top monetary officials on Wednesday suggested they were ready to intervene.

Speaking during late U.S. trading hours on Wednesday, Federal Reserve Governor Christopher Waller said recent disappointing inflation data affirms the case for the U.S. central bank holding off on cutting its short-term interest rate target.

"There is no rush to cut the policy rate" right now, Waller said in a speech prepared for delivery before an Economic Club of New York gathering.

The dollar index, a measure of the greenback against major peer currencies, ticked up in the wake of Waller's comments and last held mostly unchanged at 104.41. It's gained around 3% so far in 2024.

Market expectations for the first rate cut to occur at the Fed's June meeting have eased somewhat, currently pricing in a 60% chance compared to 67% around this time last week, according to the CME FedWatch tool.

Waller's speech is a "clue that the Fed is more wary of stickier inflation, perhaps even a re-acceleration in price growth, said Kyle Rodda, senior financial market analyst at Capital.com.

While the central bank has signalled willingness to look through some bumps along the way to some extent, Rodda perceives the case for rate cuts has on balance weakened.

"A strong inflation read tomorrow could throw into question whether market pricing for three cuts in 2024 is justified," which would be a positive for the dollar, he added.

Traders await key U.S. core inflation figures due on Friday, following a bigger-than-expected jump in U.S. durable goods orders on Tuesday that has already boosted the dollar against the yen.

The greenback reached 151.975 yen on Wednesday, its strongest against the yen since mid-1990.

The yen gained a little after Japanese authorities held a meeting on Wednesday on the currency's weakness, and top currency diplomat Masato Kanda said he "won't rule out any steps to respond to disorderly FX moves."

Finance Minister Shunichi Suzuki said earlier on the same day that authorities could take "decisive steps," language he hasn't used since Japan last intervened in 2022.

That's put the market on edge for any signs that authorities are backing up words with action.

"It’s unlikely anyone will pay 152.01 yen for USD/JPY today because of this risk," Ray Attrill, head of currency strategy at National Australia Bank (OTC:NABZY), wrote in a note.

"But in the absence of intervention before the weekend, we strongly suspect someone will next week."

Japan intervened in the currency market three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen slid towards a 32-year low of 152 to the dollar.

The Japanese currency was last pinned at 151.37 against the dollar.

Meanwhile, a summary of opinions at the Bank of Japan's March meeting released on Thursday showed policymakers were divided on whether the economy was strong enough to handle an exit from ultra-easy monetary policy.

Elsewhere, the euro was down 0.11% at $1.0814.. Sterling fell 0.17% to $1.2616.

In cryptocurrencies, bitcoin last rose 1.14% to $69,648.86.