Early Morning Call: Nikkei rises above 30,000 as Japan economy exits recession

Japan’s economic growth

Japan's economy grew faster than expected in the first three months of the year. The world's third-largest economy grew by 0.4% in the January-March period, faster than the 0.1% expected, and by 1.6% year-over-year (YoY), far exceeding market forecasts for a 0.7% gain.

This is the first rise in three quarters, as the previous quarter was revised to a 0.1% fall, down from a 0.1% rise, meaning that the Japanese economy fell into a technical recession for three months. This data was underpinned by a rise in domestic demand, after the removal of Covid curbs, but global headwinds remain. Economists still expect a moderate economic recovery, as mounting signs of a slowdown in US, European, and Chinese growth could cloud the outlook for the export-reliant economy.

Private consumption, which makes up more than half the economy, grew 0.6%, beating forecasts of a 0.4% increase. Capital expenditure also surprised, expanding 0.9%. But exports fell 4.2%, marking the first decline in six quarters.

Equities

On the equity markets, British Land reported a drop in its property valuations, as elevated levels of interest rates and broader economic worries dented sentiment in the commercial real estate sector.

Sage Group's underlying profit rose 14% to £227 million in the first six months of the year.

In Germany, Siemens raised its full-year sales and profit forecast for a second time this year. The group this morning posted better-than-expected revenue, up 14% to €19.42 billion. Industrial profit in the first three months of the year rose 47% to €2.61Bln, missing forecasts for €2.70Bln.

Commerzbank's net profit nearly doubled in the first quarter to €580Mln, helped like many banks this quarter by higher interest rates. This is better than the €481Mln anticipated by the market. Munich Re reports a 14% drop in net profit in the first quarter, dragged down by claims related to the earthquake in Turkey.

In the US, Cisco Systems is due to report tonight after the close of US markets. Analysts anticipate earnings of 97 cents per share, 10 cents higher than the same quarter last year. Revenue is forecast to reach $14.40Bln. A year ago, revenue came in at $12.84Bln.

Since Cisco's last report three months ago, shares have lost ground. In February, the networking giant posted better-than-expected earnings and revenue, raising its full-year guidance but its backlog increased as component supply remained an issue.

Last week, Cisco announced a significant investment in India, hoping that this new manufacturing operation would support demand in India and globally. Cisco aims to drive over $1Bln in combined exports and domestic production over the next few years. Cisco has been present in India since 1995. The country is the group's largest R&D centre outside the US.

Commodities

On Tuesday evening the American Petroleum Institute (API) reported another rise in crude oil stocks. Crude inventories increased by 3.7 million barrels last week, while gasoline and distillate inventories fell by 2.5 million and 900,000 respectively.

Refineries have been running above 90% for the past few weeks as fuel demand remains high, but motor fuel stocks remain below their 5-year averages, 7% below for gasoline inventories, and 16% below for distillates, according to investment firm Tudor Pickering Holt & Co.

Analysts expect US oil refiners aim to run at up to 94% of total processing capacity this quarter, driven in part by expectations of seasonal travel demand. This compares to 91.3% refinery utilisation during the same quarter a year ago and 71.5% and 87.8% run rates in 2020 and 2021.