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Prospects Daily: Japanese stocks slid after central bank holds on boosting stimulus, Eurozone consumer confidence at 7-year high, South Africa’s April consumer price inflation rises above central bank’s target

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Financial Markets

Japanese equities were down slightly on Wednesday as the yen appreciated against the dollar after the Bank of Japan refrained from additional stimulus. The Topix index fell 0.3% after climbing 0.3% yesterday to end a three-day drop, while the Nikkei 225 index sank 0.2%. Unprecedented monetary easing and government spending pushed the Topix higher by a world-beating 51% last year. But the Topix has declined 11.7% thus far this year amid concern that current stimulus measures won’t be enough to revitalize the economy and generate inflation.

Italian and Spanish government bonds advanced, halting a two-day slump that was triggered by concern over a voter backlash against austerity before May 22-25 European Parliament elections. Benchmark Italian 10-year yield fell 6 basis points (bps) to 3.21% after climbing to as high as 3.34%, the highest level in seven weeks, while comparable Spanish yield slid 8 bps to 3.02% after increasing to 3.17%, the most since April 14.

High Income Economies

Preliminary data for the European Commission consumer confidence index for the Eurozone climbed more-than-expected from -8.6 in April to -7.1 in May. Confidence improved for the third straight month and the latest level is the highest since September 2007, when the score was -6.2.

U.K. retail sales volume including automotive fuel grew 1.3% (m/m) in April, more than double the 0.5% rise in March. Discounting, good weather coupled with Easter spending underpinned stronger-than-expected growth. Sales were largely driven by food store sales, which climbed 3.6%, the monthly increase since April 2011. On the other hand, non-food store sales fell 0.4%.

The Bank of Japan (BoJ) left its monetary policy unchanged and will persist with its policy of increasing the monetary base at an annual pace of about JPY 60-70 trillion At the same time, the BoJ maintained its overall economic assessment, and announced that the economy has continued to recover moderately as a trend.

Developing Economies

East Asia and Pacific

Malaysia’s annual consumer price inflation eased to 3.4% in April from 3.5% in March on account of lower food prices, but continued to exceed the central bank’s target of 2-2.8% for 2014. Cost of food and non-alcoholic beverages slowed to 3.6% (y/y) from 3.9% (y/y) in March, and additional downward pressures came from cost of furnishings, household equipment and maintenance, and communication prices. Month-on-month, consumer prices were flat in April after rising 0.1% in March.

China’s economy added 4.73 million jobs in the January to April period, which was higher by 30,000 compared to the same period in the previous year, suggesting that the labor market has remained strong. According to the Ministry of Human Resources and Social Security the service sector created more jobs despite slowing economic growth.

Sub-Saharan Africa

South Africa’s annual consumer price inflation increased to 6.1% in April from 6% in March, exceeding the central bank’s target range of 3%-6% for 2014, due to higher food prices, which accelerated to 7.8% from 7.2% in March. Upward pressures also came from costs of education (+8.7%, y/y), restaurants and hotels (+8.5%, y/y), and housing (+5.1%, y/y); while transport costs eased slightly to 6.8% (y/y). On a monthly basis, consumer price inflation slowed to 0.5% in April from 1.3% in March, due to lower transport costs.