Abe wins big (sort of) as oil continues to dominate

With Brent Crude oil still dominating the headlines, Japan’s voters went to the polls and (sort of) emphatically re-elected Shinzo Abe, who readied the third of his Three Arrows of ‘Abenomics’.

However, whilst Prime Minister Abe will be seeking to enact genuine structural reform and further his plans for the Japanese economy, his election win was less convincing than it looks on the surface. Whilst Abe and the LDPs won, their amount of seats slipped, meaning the majority in the Japanese lower house of 326 was heavily aided by theirs coalition partners Komeito. As well as this, Japanese voter turnout was a record low, taking the shining off of Abe’s victory.

This lack of excitement over another term from Abe was felt on the markets, as the Nikkei slipped from 17167.5 to 17162.5; whilst only a marginal slip, it is not the reaction to Abe’s win the Prime Minister would have hoped for. Further misery was piled on as the Tankan manufacturing index came in worse this quarter, with Japanese businesses highlighting a less than encouraging economic environment in the country.

The only plus side for the Japanese economy was that the yen didn’t react negatively to the election. After reaching 121 last week against the dollar, the greenback has seen a drop back down to around 118. However, whilst this fall would have been much welcomed by the Japanese currency, the yen is still being sold very high against the dollar, and 118 is at least 10 points higher than it was pre the Bank of Japan’s QE announcement.

As news of the Japanese election came in, Brent Crude oil was still trying to hog the limelight, after its dismal end to last week. The commodity closed Friday at $61.51 per barrel, only to open this Monday at $60.81. Whilst oil has rallied somewhat this morning to reach $63, oil has found it notoriously difficult recently to hang onto any gains; whether they are lost today, or by the end of the week, this brief moment of positivity is no signifier of renewed health in the black stuff.

Despite the macro-picture for oil not looking good, its positivity this morning has also seen rallies from the FTSE and the DAX, as both those markets seek to put last week’s record-breaking poor performance behind them. The FTSE opened up 50 points this morning at 6271.7, whilst the DAX grew by 18 points to 9567.5. Today is a relatively quiet day for UK and Eurozone data, with only the CBI industrial order expectations and German Buba monthly reports to be announced respectively.

With this in mind, the FTSE and the DAX will be looking for some bullish sentiment stemming out of the USA, which sees a flurry of figures announced this afternoon. As the Dow Jones closed out last week poorly, finishing Friday at 17253, the afternoon brings Empire State manufacturing index, capacity utilization rates and industrial production numbers. After last week saw a mixed bag of US data contribute to an overall disappointing seven days for the US markets, the Dow et al will be hoping for a good start to the week prompted by a strong round of figures.