German consumers a touch more upbeat

Chris Scicluna
Emily Nicol

The mood music surrounding the US-China trade talks has seemingly improved once again, with China’s commerce ministry reporting a phone conversation this morning between Vice-Premier Liu He and other leading Chinese policymakers, and US Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin. According to the statement, the negotiators “discussed how to address respective core concerns, reached consensus on solving related problems, and agreed to keep communication for the remaining matters in the ‘phase one’ trade negotiations”.

That might simply mean that the Chinese authorities have been content to segregate the trade issues from the two countries’ differences on other matters (e.g. Hong Kong). But after Fed Chair Jay Powell yesterday evening had struck an optimistic note, concluding “At this point in the long expansion, I see the glass as much more than half full. With the right policies we can fill it further”, in the absence of significant economic news elsewhere in the region, the trade news allowed most Asian stock markets to rise further today, albeit with much less vigour than yesterday. So, for example, both the Nikkei 225 and China’s CSI300 closed up 0.35% on the day.

The bond markets have also been relatively uneventful, with USTs moving broadly sideways in Asian time (10Y yields currently close to 1.76% about 2bps lower from this time yesterday). The JGB curve has flattened somewhat (10Y yields down about 1bp to close to -0.11%, but yields of 30Y down more than twice that) as the latest services producer price data added to the sense of underlying weakness. Euro area govvies are little changed at the open after the latest German consumer confidence survey results suggested a modest improvement in the latest month. Looking ahead, US goods trade data will be the highlight.

Contrasting with last week’s CPI figures, the overnight release of Japan’s services PPI surprised on the upside, at face value at least, with the headline rate rising 1.6ppts in October to 2.1%Y/Y, the strongest reading since the aftermath of the previous consumption tax hike. But this increase more than fully reflected October’s consumption tax increase. Indeed, when discounting this effect, headline services PPI fell 0.1ppt to just 0.4%Y/Y, the lowest rate for three years. And when also excluding international transportation costs, underlying services PPI declined 0.3ppt to 0.3%Y/Y, the weakest since August 2016. Within the detail, advertising services costs posted a steep decline in October (down 1.9ppts to -3.0%Y/Y), while prices of leasing (including communications equipment and autos) and, perhaps surprisingly in light of the Rugby World Cup, hotel services also fell. So, today’s release adds to evidence that price pressures remain very subdued down the pipeline in Japan. Certainly, the release of the flash Tokyo CPI figures for November on Friday seems unlikely to report a notable upwards adjustment in underlying inflation this month.

Euro area:
After yesterday’s (otherwise underwhelming) ifo survey suggested that German retailers have become more optimistic about the outlook for sales over coming months, this morning’s GfK survey suggested that German consumers are a touch more upbeat too. Having previously dropped to a 3½-year low, the headline consumer climate index edged up 0.1pt in the latest month to 9.7, still well below last year’s range. Within the detail, having last month fallen to the weakest since the euro crisis, the survey reported improved expectations of business conditions to a five-month high. And income expectations ticked up from October’s six-year low. However, the survey indicator of willingness to buy fell in November to a three-month low well below the range seen in the first half of the year (and far below the levels seen in 2017 and 2018). And the ECB will be more than disappointed to see the measure of consumer price expectations fall the most since 2015 to a 20-month low.

Beyond the data, ECB Governing Council members Cœuré and Wunsch will speak publicly. In the markets, Italy will sell 2Y fixed-rate and 22Y index-linked bonds.

In the US, it will busy day for economic releases, including October’s advance goods trade and inventories reports. This afternoon will also bring the Conference Board’s consumer confidence indicator for November, as well as the FHFA and S&P Core-logic home price indices for September and new home sales figures for October. In the markets, the US Treasury will sell 2Y floating-rate notes and 5Y fixed-rate notes.

A quiet day for UK economic news will bring just UK Finance lending figures for October, which are likely to show that demand for mortgage lending remained broadly stable at the start of the fourth quarter despite ongoing concerns about the economic outlook. In the markets, the DMO will sell £3bn of 2025 Gilts.

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