Japanese retail sales boosted by relaxed Covid restrictions

Chris Scicluna
Emily Nicol

Japan’s retail sales boosted by relaxation of restrictions and higher prices; IP and labour market data due tomorrow
Thanks to the termination of the state of emergency and extremely low level of new Covid-19 cases, Japan’s latest retail sales figures reported a second successive monthly increase in October, with growth of 1.1%M/M leaving sales 0.9% higher than a year earlier and back above the pre-pandemic level. There was another decent month of growth in spending on apparel and accessories (6.6%M/M), while sales of household appliances rose a further 4.2%M/M. However, the rebound was principally driving by a more than 9%M/M jump in spending on fuel, to leave sales up 26%Y/Y. And that figure was boosted by price effects, with gasoline prices having risen by almost 4% on the month – indeed, a METI official suggested that excluding fuel, overall sales would have been down compared with a year earlier. In addition, due not least to ongoing production cuts in the autos sector, sales of motor vehicles fell a further 6.7%M/M to leave them more than a fifth below the pre-Covid level (and down by a third compared with the pre-consumption tax peak).

Tomorrow’s industrial production numbers are similarly expected to report a bounce back at the start of the fourth quarter, although the forecast 2%M/M increase in output would be small beer compared with the cumulative 10% drop over the previous three months. Indeed, this would still leave output down almost 4½%Y/Y, with auto production likely to have remained weak amid persistent supply bottlenecks. Against this backdrop, November’s vehicle sales numbers (due Wednesday) will likely be very subdued and well down on a year earlier, in spite of an anticipated further improvement in consumer confidence in this month (survey due Friday). Meanwhile, October’s labour market numbers (due tomorrow) are expected to show that the unemployment rate moved sideways at 2.8% for the fourth consecutive month despite a further modest pickup in the job-to-applicant ratio. And Wednesday’s MoF capital spending survey will provide further insight into firms’ financial performance last quarter, and offer a guide to potential revisions to private sector capex and inventory numbers ahead of updated Q3 GDP data on 8 December.

Chinese PMIs in focus this week; manufacturing output to look more stable, non-manufacturing growth likely eased
The November PMIs are the main focus in China this week. Most notably, the official PMIs come tomorrow. And after dropping to a 20-month low consistent with contraction in October (49.2), the official manufacturing PMI should return closer to the 50 mark, suggesting stable output in November, supported by increased working days, few coronavirus cases, and possibly also some easing of power constraints. Despite a boost from ‘Singles Day’ shopping, the non-manufacturing PMI is expected to slip back for a second successive month (from 52.4 in October) albeit remaining consistent with growth in the sector.

Euro area flash CPI estimate set to rise to a fresh euro-era high; economic surveys, unemployment and retail sales also due
A busy week ahead for euro area top-tier data releases includes the flash inflation figures and European Commission survey results for November, as well as October unemployment and retail sales numbers. Most notably, tomorrow’s flash euro area CPI estimate is expected to have taken a further step up in November. We expect headline inflation to increase 0.4ppt to 4.5%Y/Y, a new euro-era high. While in part that will be driven by higher energy prices, we expect core inflation also to rise 0.3ppt to 2.3%Y/Y, which would be the highest for more than 19 years. Today’s preliminary German and Spanish CPI numbers – which will both likely come in close to 5½%Y/Y on the EU-harmonised measures – will provide further guidance. Consistent with the likelihood of such a significant pickup in inflation in Germany in November, this morning’s data from North Rhine-Westphalia reported a rise of 0.6ppt to 5.1%Y/Y. Euro area PPI figures (Thursday) will give an update on price pressures at the factory gate.

This morning will also bring the Commission’s survey – arguably the most accurate gauge of economic activity in the euro area – which, in contrast to last week’s flash PMIs, is expected to show the headline Economic Sentiment Indicator moderating slightly in November, albeit remaining only just below July’s series high (119.0). This will in part reflect a decline in consumer confidence (the flash index fell a larger-than-expected 2pts to a six-month low) as the number of new coronavirus cases surged in some member states and price pressures continued to rise. Meanwhile, euro area unemployment (Thursday) is expected to have declined further in October to 7.3%, which would be the lowest since February 2008, while euro area retail sales (Friday) are forecast to have reversed the 0.3%M/M decline recorded in September. Among other country releases, November car registrations numbers from France, Italy and Spain are due Wednesday, with equivalent German numbers due Friday.

In terms of ECB-speak, various monetary policy makers will be in action this week, including President Lagarde (today and Friday), Vice-President de Guindos (tomorrow), ECB Chief Economist Lane (Friday) and ECB Executive Board member Schnabel (today). The emergence of the Omicron variant obviously provides Lagarde with an extra reason to remain dovish and look through current inflation pressures.

UK lending numbers and surveys unlikely to have much bearing on December’s policy decision
The UK’s economic data calendar is relatively quiet this week, and unlikely to have much bearing on December’s monetary policy decision. First up today will be the release of the BoE’s latest lending figures, expected to show that demand for consumer credit remained subdued last month and mortgage lending activity moderated. Tomorrow, the Lloyds business barometer will shed more light on confidence in the economy in November, with particular interest in firms’ pay growth expectations. Wednesday will bring the BRC’s latest shop price index, along with the final manufacturing PMI survey, which is likely to confirm the surprise uptick in production reported in the flash release (the output index rose 1.6pts to 52.9). In contrast, Friday’s final service sector PMI is likely to confirm the modest fall back in the headline activity index to 58.6, leaving it firmly above the key 50 expansion/contraction level. More notable than the data will likely be commentary from the BoE, with external MPC member Catherine Mann speaking publicly tomorrow.

US payrolls report to show continued solid growth; business and consumer surveys also due
A busier week for US economic releases concludes with the most noteworthy on Friday, November’s labour market report. With job openings elevated and Covid-19 risks diminishing (at least through to the middle of the month), this report is likely to show another month of solid payrolls growth – indeed, Daiwa America’s Mike Moran expects an increase of 600k (a touch above the Bloomberg consensus). And so, the unemployment rate is expected to have fallen further to 4.5%, while growth in average hourly earnings is likely to have remained firm. The US dataflow kicks off today with October pending home sales, followed by the FHFA and Case-Shiller home price indices tomorrow and October construction data on Wednesday. Sentiment indicators due this week include the Conference Board’s consumer survey (tomorrow), manufacturing ISM (Wednesday) and services ISM (Friday). Meanwhile, a busy week of Fed-speak will see Chair Powell make opening remarks at a NY Fed innovation event today and testify to Congress tomorrow and Wednesday. 

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