German factory orders beat expectations

Emily Nicol

German factory orders beat expectations in September but still confirmed sixth successive quarterly decline in Q3, while manufacturing turnover fell sharply
This morning’s release of German factory orders for September beat expectations, with orders posting a modest increase of 0.2%M/M having been expected to decline by 1½%M/M. But this followed a marked downwards revision to growth in August, by 2ppts to 1.9%M/M due to an error in the data input for the computer, electronic and optical products sector. And given the significant drop in July, this left orders down 4.0%3M/3M. Orders in September were also boosted by a whopping surge in the ship building category (581%M/M). So, when excluding major items, orders fell in September (-2.2%M/M), with the weakness broad based across the subsectors. Admittedly, having risen in the previous two months, this left core orders down just 0.4%3M/3M, the sixth successive quarterly decline but the softest for a year. In terms of manufacturing turnover, today’s release reported the sixth monthly fall in the past seven and by 1.6%M/M, the steepest drop since March. This left turnover down 1.6%3M/3M, suggesting that risks to tomorrow’s German industrial production figures are skewed to the downside – currently the Bloomberg survey consensus is for a drop of just 0.1%M/M. Meanwhile, September industrial production figures from Italy, the Netherlands and Ireland are also due (Friday).

Euro area retail sales and PPI figures in focus on Wednesday
After last week’s flash estimate of euro area Q3 GDP reported that the economy contracted slightly, this week’s retail sales release for September (Wednesday) will offer some insight into the strength of consumer spending at the end of the summer. Figures published by Germany (-0.8%M/M) and France (+1.1%M/M) provided mixed messages, suggesting that aggregate sales might well be broadly flat in September. But having failed to grow in the previous three months, that would leave them down around 0.6%3M/3M. With respect to the inflation outlook, euro area producer price figures for September (Wednesday) are likely to suggest that consumer goods inflation will continue to fall over coming quarters. In particular, PPI inflation is expected to have fallen further into negative territory to a series low (-12.8%Y/Y). Meanwhile, updated German consumer price figures (Wednesday) are expected to align with the flash estimates that showed the headline HICP rate decline a steeper-than-expected 1.3ppts to a 29-month low of 3.0%Y/Y, as well as provide the more granular breakdown. In addition, the ECB’s monthly consumer expectations survey (Wednesday) will offer an update on households’ medium-term inflation expectations.

UK GDP data on Friday likely to report a mild contraction in Q3
The main event in the UK data calendar this week will be the release of the first estimate of Q3 GDP, as well as the monthly production figures for September, on Friday. Various indicators have signalled a marked slowdown in economic momentum over the summer, with PMIs pointing to a mild contraction over the quarter as a whole. Indeed, while the construction sector has benefitted from a positive carry-over effect following a strong end to the second quarter, industrial production in August was trending merely flat. Certain services sectors – i.e. healthcare, education and transport – have been impacted by industrial action, while retail sales have been hit by inclement weather, weak consumer confidence, higher borrowing costs and economic uncertainties. So, while hospitality and leisure activities might well have benefitted from the joint-hottest September on record, NHS strikes are likely to have weighed on activity that month. As such, over the third quarter as a whole, we forecast a modest contraction in GDP of 0.1%Q/Q. Ahead of Friday’s releases, October surveys will dominate the data flow, with the construction PMI (today), BRC retail sales monitor (tomorrow), REC report on jobs (Wednesday) and RICS residential indicators (Thursday).

Japanese wage and consumer spending data in focus this week
With the BoJ having committed to continue with its Yield Curve Control framework and the negative rate until it has more confidence that “an intensified virtuous cycle between wages and prices” has been achieved, focus in Japan’s data calendar this week will on tomorrow’s labour earnings figures for September. These are expected to show that average wage growth increased 0.4ppt to 1.2%Y/Y, a three-month high, but nevertheless well below the 3.58% increase agreed in this Rengo spring wage negotiations. And when adjusting for inflation, real wage growth will remain firmly in negative territory for the eighteenth consecutive month and improve only slightly from the decline of 2.8%Y/Y in August. Tomorrow will also bring the latest household spending figures for September, which will be followed by the BoJ’s consumption activity index – arguably the best guide to the national accounts measure of consumption – on Wednesday. Meanwhile, October’s economy watchers survey (Thursday) will provide an update on economic conditions at the start of Q4.

US trade figures and University of Michigan consumer confidence survey main releases this week
It should be a relatively quiet week ahead for top-tier US economic releases. Tomorrow will bring updated trade figures for September, which are expected to echo the slight deterioration in the deficit reported in the advance goods trade release. In particular, the total trade deficit is forecast to have widened by $1.2bn to $59.5bn in September. Meanwhile, focus at the end of the week will on the preliminary findings of the University of Michigan consumer sentiment survey in November. Higher borrowing costs and a cooler jobs market are likely to have weighed on confidence, with the headline sentiment index expected to have edged slightly lower for a fourth consecutive month. The survey’s inflation expectations measures will also be watched. The year-ahead gauge jumped in October by 1.0ppt to a five-month high of 4.2%Y/Y, while the measure of 5-10 years ahead (3.0%Y/Y) was in line with the average over the previous eighteen months.

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