FXTRADING Economic Data Summary (Asia-Pacific | 05/25)

Canadian Consumption Data Appears Strong on the Surface but Remains Weak Underneath

Canadas retail sales rose 0.9% month-on-month in March, reaching a total of CAD 72.7 billion, significantly above market expectations of 0.5%. On the surface, consumer activity appeared to regain momentum, but the main driver behind the increase was still higher energy prices. Supported by ongoing tensions in the Middle East and elevated global oil prices, sales at gasoline stations and fuel retailers surged 12.4% during the month, becoming the primary contributor to overall retail growth.

Excluding automobiles, gasoline stations, and fuel vendors, Canada‘s core retail sales actually fell 0.1% in March. In volume terms, overall retail sales declined 0.7%, while gasoline station sales volumes dropped 1.9%, indicating that consumers were not purchasing more fuel, but were simply paying higher prices due to rising oil costs. Although total retail sales still increased 2.1% in the first quarter, marking the seventh consecutive quarterly gain, and Statistics Canada’s preliminary estimate suggests retail sales may rise another 0.6% in April, current consumption trends appear to be driven more by inflation than by genuine demand recovery. FXTRADING believes Canadas consumer market cannot yet be considered truly recovering, as high interest rates and elevated living costs continue to pressure household spending, with future consumption momentum likely to remain weak.

German Business Sentiment Shows Mild Improvement

Germanys Ifo Business Climate Index edged up from 84.5 to 84.9 in May, beating market expectations of 84.2 and suggesting the German economy may be starting to stabilize after several months of weakness. The current conditions index rose from 85.5 to 86.1, while the expectations index improved from 83.5 to 83.8, reflecting slightly better overall business sentiment. Manufacturing confidence also improved from negative 12.1 to negative 11.3, indicating that easing supply chain pressures are giving some export-oriented industries limited breathing room.

Conditions in the services sector also improved, with the sector confidence index returning above zero from negative 2.6 to 0.1. However, Germany‘s domestic economy has not fully recovered. The trade sector climate index continued deteriorating from negative 21.1 to negative 21.9, while construction sector confidence weakened further to negative 15.6. FXTRADING believes Germany’s economy currently resembles a temporary stabilization rather than the beginning of a genuine recovery cycle. Elevated energy prices, uncertainty surrounding the Middle East situation, and weak overall Eurozone demand are all likely to continue pressuring Germanys economic outlook.

UK Retail Sales Weaken Again

UK retail sales fell 1.3% month-on-month in April, significantly worse than market expectations for a 0.6% decline, effectively erasing Marchs 0.6% rebound. Over recent months, the UK consumer market has struggled to sustain any meaningful recovery, and mounting living cost pressures together with economic uncertainty are increasingly undermining household spending willingness. Pressure is particularly visible in discretionary spending categories, with many consumers actively reducing non-essential purchases.

Excluding automotive fuel, UK retail sales still declined 0.4%. Clothing retailers and online retail platforms generally experienced weaker sales, with many businesses citing weather conditions and declining consumer willingness to spend as key reasons behind the softness. FXTRADING believes the UK consumer market may remain subdued going forward, while slower income growth and elevated financing costs could create additional downside risks for the UK economy in the second half of the year.

Japans April Inflation Cools Significantly

Japan‘s April core inflation data showed that core CPI excluding fresh food rose only 1.4% year-on-year, below market expectations of 1.7%, down further from March’s 1.8%, and marking the lowest level since March 2022. Headline CPI also slowed from 1.5% to 1.4%, remaining below the Bank of Japans 2% inflation target for a fourth consecutive month.

More importantly, core CPI excluding both fresh food and energy slowed from 2.4% to 1.9%, falling back below the 2% threshold, while services inflation eased to 0.9%. Education costs dropped sharply by 10.6%, becoming a major drag on overall service prices. FXTRADING believes that cooling inflation means the Bank of Japan may continue slowing the pace of future rate hikes, while weak underlying economic growth will increasingly limit the central banks policy flexibility going forward.

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