German factory orders were a touch firmer than expected

Chris Scicluna
Emily Nicol

Japan’s household spending beat expectations, but real wage growth falls sharply
Japan’s household spending figures beat expectations at the start of Q4. In particular, spending rose for the second successive month, by 1.1%M/M to leave it up 1.2%Y/Y. And when excluding expenditure on volatile items such as housing and autos, core spending rose a stronger 1.5%M/M, supported by a third monthly increase in clothing and a rebound in recreation. But the near-term spending outlook remains highly uncertain, not least reflecting a historically weak willingness to make major purchases amid the steady squeeze on budgets from higher prices. Indeed, while today’s labour earnings figures suggested that nominal wage growth of 1.8%Y/Y remained well above the long-run average (0.1%Y/Y). But it remains well below rates (>3%) that the BoJ will judge to be consistent with achievement of its inflation target over the medium term. And real wage growth fell significantly further into negative territory in October, to -2.6%Y/Y, the steepest decline since mid-2015.

German factory orders rise in October thanks to one-off bulk orders
German factory orders were a touch stronger than expected, rising 0.8%M/M in October. But this followed a marked decline in September (admittedly revised to a much smaller-than-previously estimated -2.9%M/M). And when excluding large one-off contracts, orders declined 1.2%M/M to their lowest level since August 2008. Despite a boost from bulk orders, the weakness was domestically driven (-1.9%M/M), offset by larger orders from overseas (2.5%M/M). Capital goods orders (+3.2%M/M) were boosted by a partial reversal in the autos sector. But orders of intermediate and consumer goods fell sharply to a ten-month low. Ahead of tomorrow’s German IP release, today’s data also suggested no improvement in manufacturing turnover at the start of Q4 (-0.2%M/M).

Comments suggest ECB Chief Economist will advocate 50bp hike next week
In an interview with Milano Finanza published this morning, ECB Chief Economist Philip Lane implied that he is most likely to recommend a hike of 50bps at next week’s monetary policy meeting. In particular, while he thought the decisions to hike by 75bps in September and October were “relatively straightforward” given the low level of rates back then, he insisted that the forthcoming meeting would have to take account of the significantly higher starting point, given that the ECB has now hiked by a cumulative 200bps so far this cycle. Meanwhile, in terms of Quantitative Tightening, Lane noted that – as for the Fed, and in line with expectations – when it eventually starts, ECB QT should operate “in the background, in a predictable, measured way”, ensuring that rates remain the primary instrument. In addition, in terms of the inflation outlook, he judged that “it is likely we are close to peak inflation. But whether this already is the peak or whether it will arrive at the start of 2023, is still uncertain.” And while he expected second-round effects “to drive inflation next year and in 2024”, he did not disagree that inflation should be back close to the 2.0% target in 2025.

BRC retail survey suggests boost to value of UK sales in November due to higher prices
At face value, the BRC’s retail monitor suggested a marked boost to sales in November supported by Black Friday discounting and the start of the FIFA World Cup. Indeed, the survey measure for the value of like-for-like sales jumped 4.1%Y/Y, the strongest growth since January. But with shop price inflation rising by almost 7½%Y/Y, retail volumes look to have declined sharply compared with a year ago. The value of food sales rose 5.8%3M/Y in November, with non-food sales merely flat compared with a year earlier despite the significant rise in prices, suggesting that consumers continue to scale back on non-essential items. And with prices of essential items to remain elevated for the time being, and borrowing costs continuing to rise, we would expect discretionary spending to maintain a downwards trend leading up to Christmas and into the New Year.

Construction PMIs to point to contraction in the euro area and slower growth in UK
Looking ahead, the latest construction PMIs for November will be published shortly. These are expected to show that construction activity continued to decline across the euro area, with Germany continuing to lead to the weakness. While the equivalent UK construction PMI is expected to remain above the key-50 expansion level, it too is expected to signal a slowdown in the sector last month.

US trade deficit expected to widen sharply due to drop in goods exports and rise in imports
In the US, today will bring updated trade figures for October. While the services surplus might well reverse some of the decline seen in September, last week’s flash goods report suggested a much larger-than-expected widening in the deficit ($7.1bn) as exports fell sharply (-2.6%M/M) and imports rose (0.9%M/M). Overall, our colleagues at Daiwa America expect the total trade deficit to widen $6.7bn to $80bn in October, implying a drag on GDP growth at the start of Q4. 

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