Japan: Industrial Rebound

Japan: Industrial Rebound

Japan's factories hummed harder; China's growth path continued; Fed Chair Powell spoke up; Summitry and substance were on display at the G20 meeting in Buenos Aires.

[Interest rates] “… remain just below the broad range of estimates of the level that would be neutral for the economy.”
Fed Chair Jay Powell

Japan: Industrial rebound

Preliminary figures for October show Japanese factory output surprising to the upside, rising 2.9% from September’s level, and 4.2% year-over-year -- both well above expectations. Retail trade also rose in October, up 3.5% year-over-year and 1.2% since September. Housing starts rose 0.3% year-over-year in October as well. The year-over-year figures are especially encouraging, since Q3 saw a series of floods and other disasters; the year-ago figures show October’s economy regaining its footing.

However, Japan is far from completely out of the woods; vehicle production fell -5.3% from the year ago level, possibly due to rising tariffs’ construction orders fell -16.5% from the previous year.

China: Figuring growth

The most recent official figures reflect the changing nature of China’s economy.  Manufacturing PMI[1] has fallen to the neutral level of 50.0 for November, having reached as high as 52.4 for September 2017. This component pulled the overall “composite” PMI figure  for November down to 52.8. Non-manufacturing PMI remained above neutral for the month, at 53.4. Industrial profits, however, rose some 3.6% in October year-over-year.

On the financial front, the share of global payments[2] made in Chinese yuan for October came in at 1.70%, below September’s level of 1.89%; total foreign exchange reserves fell some 1% to $3.053 trillion as of the end of October, some 7.4% below the year-ago figure.

The Fed: About next year  

The positive impact on markets of Fed Chair Jay Powell’s November 28 statements was less about the technical issue of neutral interest rates than about the number and size of the FOMC’s upcoming rate hikes.    

Before Powell’s speech, the prevailing opinion, based on previous statements, was that the Fed was anticipating more rate hikes in response of continuing above-trend U.S. growth. Yet based on recent forward-looking data,  financial markets had grown increasingly concerned that the economy might not grow in line with the Fed’s expectations. Example: the expected future rate of inflation, as measured by the “break-even” inflation rate, had been falling since July, reaching as low as 1.73% as of November 27, well below the Fed’s stated 2% objective.

Whether or not the FOMC has in fact changed its outlook will likely be revealed on December 19, when the Fed’s widely anticipated rate hike will be accompanied by its regularly-scheduled quarterly economic outlook, which includes, inter alia, projections by individual members of the FOMC about their expectations for rates in the following two years.

Global Trade: Summitry and substance  

The G20 economic summit in Buenos Aires was the setting for an unusually large number of negotiations on issues usually settled in advance of these meetings, including U.S.-China tariffs, Brexit, crude-oil production agreements between Russia’s Vladimir Putin and Saudi Arabia’s Mohammed bin Salman, tensions over Russia’s recent military moves in and around Ukraine – not to mention who stands next to whom in the widely-anticipated group photo. Given that, expectations for headline news from the post-conference consensus communiqué for this session are relatively limited.


[1] Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms. PMI greater than 50 indicated economic expansion; below 50, contraction.

[2] The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the widely-used provider of a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.


The Group of Twenty (also known as the G-20 or G20) is an international forum for the governments and central bank governors from 20 major economies. The members include 19 individual countries—Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States—along with the European Union (EU). The EU is represented by the European Commission and by the European Central Bank.

The U.S. Federal Reserve, or “Fed,” is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The Federal Open Market Committee (FOMC) is the Fed's principal policymaking committee.


[1] Definition of PMI goes here

[2] Define SWIFT


[1] Definition of PMI goes here

[2] Define SWIFT


Important Information


All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA.  Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People’s Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia and New Zealand:

This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827).  The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, or investment advice.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.