French retail sales edged higher in March, despite tightening of restrictions

Chris Scicluna

Mixed markets in Asia today with coronavirus concerns back at the forefront
Wall Street ended last week on a positive note with the S&P500 gaining a further 0.4% to close at a new record high, while neither Treasury yields nor the greenback were greatly changed. However, it has been a mixed start to the week in Asia thanks to worries about the latest upswing in coronavirus cases. In Japan, today’s news of a stronger-than-expected lift in exports in March was countered by news that Osaka’s governor is seeking a new declaration of a state of emergency. This follows the weekend’s reports that Tokyo’s governor had instructed officials to consider whether another state of emergency might be needed there, with new coronavirus cases rising to a two-month high. And less than 100-days from the scheduled start date, an ANN poll taken over the weekend revealed that 73% of respondents want the Olympic games to be cancelled or delayed. Nonetheless, the TOPIX fell just 0.2% compared with declines of more than 2% in bourses in India bourses where daily new coronavirus case numbers have now sadly topped 260,000. By contrast, perhaps due to easing concerns about the financial health of China Huarong Asset Management, the CSI300 has begun the week with an advance of more than 2%.

 Japan’s exports jump in March as Chinese demand rebounds
This week’s relatively light Japanese economic diary kicked off today with the MoF releasing the merchandise trade report for March, casting further light on whether export demand might help to moderate the impact of a pandemic-induced contraction in domestic demand in Q1.

As signaled by both last week’s Chinese trade figures and also by local manufacturing indicators, trading conditions improved for Japanese exporters in March with export receipts increasing a welcome 4.3%M/M. Given base effects – exports had declined nearly 9%M/M last year – this result lifted annual growth to a more than 3-year high of 16.1%Y/Y. This outcome was also much firmer than market expectations and led to a wider-than-expected seasonally-adjusted surplus of ¥298bn, compared with the small deficit of ¥11bn recorded in February. Notably, exports to China increased almost 41%Y/Y in March – up from just 10%Y/Y during the LNY-impacted month of February. By commodity, exports of general machinery increased 18.7%Y/Y while exports of manufactured goods and electrical machinery increased 13.0%Y/Y and 12.7%Y/Y respectively. Meanwhile, after increasing strongly over the previous two months, import values slipped 0.7%M/M in March but still increased 5.7%Y/Y. To some extent this annual growth reflects a price-driven rebound in imports of energy products and other raw materials (the latter increasing 30%Y/Y). Nonetheless imports of manufactured goods, general machinery and electrical machinery all posted double-digit annual growth.

As usual, a little later in the day the BoJ released its analysis of the export and import data, helpfully adjusting the MoF’s statistics to remove the influence of both seasonality and changing prices. According to the BoJ’s analysis, real exports increased 3.1%M/M, erasing most of the decline registered in February, and were up 7.1%Y/Y. As a result, real exports increased 1.9%Q/Q, following double-digit growth in the preceding two quarters. By contrast, the BoJ estimates that real imports declined 5.9%M/M in March and so were down 4.4%Y/Y. But given the growth seen in prior months, imports still grew 1.9%Q/Q in Q1 suggesting that net merchandise trade will have little impact on GDP growth in Q1. The BoJ will release more details regarding the commodity breakdown and destination of these exports later this week. In the meantime, the MoF’s own volume estimates indicate that growth in exports to China increased to 40.7%Y/Y in March – suggesting very little movement in prices – from just 10%Y/Y in February. Exports to the US increased just 3.9%Y/Y, but this represented a substantial improvement on the 16.9%Y/Y declined reported in February and was the fastest growth reported since July 2019. Similarly, the 6.9%Y/Y decline in exports to the EU was the best result since September 2019.

In other news, METI released the final IP figures for February. Production is now estimated to have declined 1.3%M/M – less than the 2.1%M/M decline that was estimated previously. Including the impact of earlier revisions, output in February is now estimated to have declined 2.0%Y/Y, compared with the 2.6%Y/Y decline reported previously. So while firms have forecast a further (similar) decline in output in March, today’s revisions leave output on track to expand a little under 2%Q/Q in Q1. Elsewhere in the report, shipments fell 3.2%Y/Y (revised from a 3.5%Y/Y decline) and inventories fell 9.5%Y/Y (revised from a 9.6%Y/Y decline). As always, the brand new content in today’s release concerned capacity use, which in aggregate declined 2.8%M/M in February and so was down 1.0%Y/Y. Firms’ productive capacity was unchanged during the month and down 1.2%Y/Y.

Service sector, PMI, CPI and BoJ financial sector reports still ahead in Japan
With there being no data scheduled this week in China, the focus in Asia over the remainder of the week will likely remain on Japan. Tomorrow will bring news on the service sector’s performance during February, with a partial rebound in the Tertiary Industry Activity Index likely following a disappointing 1.7%M/M decline in January. In addition, the BoJ will release its latest semi-annual Financial System Report, which in line with Governor Kuroda’s recent comments will again doubtless conclude that the financial system remains ‘stable on the whole’. The BoJ’s quarterly Senior Loan Officer survey will follow on Wednesday while the national CPI report for March and the flash PMIs for April will take centre stage on Friday. As far as the CPI is concerned, earlier advance data from the Tokyo region points to a small uptick in the BoJ’s preferred measure of core inflation. As regards the PMIs, following significant upward revisions when the final March readings were released, it will be interesting to see whether there has been any slippage – most likely in the services sector – in light of the recent renewed uptrend in coronavirus cases and re-imposition of restrictions.

French retail sales edge higher in March according to the Bank of France
The week’s euro area dataflow got underway this morning with the results of the Bank of France’s retail survey for March. Sales in France were relatively firm at the start of the year, being more than 1½% above their level a year earlier in January and February on the Eurostat measure. And the Bank of France’s survey this morning suggested that they were stable in March. Despite the tightening of restrictions over the course of the month, which saw non-essential stores closed in 19 departments from 20 March, retail sales reportedly edged up 0.5%M/M. Sales of industrial goods (up 1.1%M/M) were offset somewhat by a drop in sales of food products (-0.7%M/M). We look for a drop in sales in the current month as the restrictions take a greater toll, before a rebound over the remainder of Q2 (pandemic permitting).

Thursday’s ECB meeting should be uneventful, while German politics will be in focus again today and flash PMIs are due Friday
The conclusion of the ECB’s latest monetary policy meeting on Thursday should be relatively uneventful. The Governing Council’s March decision to accelerate PEPP purchases within the existing €1.85trn envelope appears to have been the result of a compromise among members of differing views and will not be reopened for debate. Moreover, while, so far, the ECB has not materially accelerated its purchases, euro area bond yields have remained below their peaks for the year reached in late February. So, the Governing Council will have no additional cause for concern about financial conditions, even while lack of clarity about its precise reaction function persists. Meanwhile, although the intensification of the pandemic and associated renewed lockdown measures raise concern about the near-term outlook, the ECB’s projections remain credible. Indeed, the Governing Council will take comfort from the recent acceleration in vaccine roll-out in the region, as well as US fiscal policy, which ECB staff expect will add 0.3% to euro area GDP and 0.15% to euro area inflation over the projection horizon. Overall, therefore, expect no change to ECB policy or forward guidance in the coming week, with the pace of asset purchases to be reviewed by the Governing Council in June alongside updated macroeconomic projections.

Politics-wise, the weekend brought no breakthrough in terms of the identity of the centre-right candidate to try to succeed Angela Merkel as German Chancellor. Neither the CDU’s unpopular centrist Armin Laschet nor the CSU’s right-wing populist Markus Soeder will back down yet. While the CDU holds the political clout, opinion polls continue to highlight Laschet’s lack of popularity and Soeder’s appear. Regardless, with the centre-right union’s main threat at September’s election, the Greens, set to confirm their own candidate today (either Robert Habeck or Annalena Baerbock), surely either Laschet or Soeder will make way this week, and perhaps as soon as today.

Data-wise, the most notable new euro area figures this week will come at the back end, with the preliminary April PMIs for the euro area and the two largest member states to be published on Friday. Following the recent broad-based improvement in euro area economic sentiment, the latest survey indicators are expected to move broadly sideways in April. Supported by a strong rebound in manufacturing, the euro area composite PMI is expected to come in close to the March reading of 53.7. However, rising coronavirus cases in Germany and France are expected to be reflected in the services PMIs, with the French activity index for the sector expected to report a contraction at the fastest pace since November last year.

Busy week for UK data kicks off tomorrow with the latest labour market report
This week will be a busy one for UK economic data bringing, among other releases, the latest labour market report (tomorrow), inflation figures (Wednesday), and retail sales and public finance data, the GfK consumer confidence survey and flash PMIs (Friday). With the government’s Job Retention Scheme still in operation despite pandemic restrictions also being in place, the unemployment rate is expected to edge up just 0.1ppt to 5.1% in the three months to February. Meanwhile, we expect the inflation data to report a rise of 0.4ppt in the headline CPI rate to an eight-month high of 0.8%Y/Y in March, thanks not least to further upward pressure from energy prices. However, we also expect a pickup in clothes inflation to be reflected in an increase in the core measure to 1.2%Y/Y. With consumer confidence improving, we expect to see further growth of about 1½%M/M in retail sales (both including and excluding auto fuel) in March, to push total sales up about 4%Y/Y albeit still down from December’s level. With the economy reopening gradually, the flash PMIs are likely to report an acceleration in growth this month, with the composite PMI likely to rise about 2pts from March’s six-month high of 56.5 thanks not least to improvement in the services sector.

A very quiet week for US data; no Fed-speak so focus will likely be on corporate earnings
There are no economic reports of any note scheduled in the US today and very few over the remainder of the week either. Indeed, it is not until Thursday that we will receive news that might conceivably move markets, in the form of the weekly jobless claims report, existing home sales, the Conference Board’s leading index and the Kansas City Fed’s manufacturing index. Daiwa America Chief Economist Mike Moran expects a weather-assisted 4.5%M/M rebound in existing home sales in March, together with an 11th consecutive lift in the leading index. On Friday, Mike expects an even larger 13.5%M/M rebound in new home sales to be reported for March, while the flash manufacturing and services PMIs for April will likely broadly maintain the historically elevated readings seen back in March. Given next week’s looming FOMC meeting there is no Fedspeak scheduled over the coming week, so most of the focus for investors will likely be on the corporate earnings season, which ramps up this week with 79 S&P500 companies scheduled to present their results.

RBA minutes and flash retail data take centre stage in Australia this week
There were no major economic reports in Australia today and the remainder of this week’s local diary contains only a small number of entries that will likely command market interest. Tomorrow will bring the release of the minutes from this month’s RBA Board meeting, where the focus is likely to be on any signs that consistent upside surprises in the labour market might cause the Bank to reassess the medium-term outlook for monetary policy when revised forecasts are prepared for next month’s Statement on Monetary Policy. On the data front most interest will centre on Wednesday’s release of preliminary retail sales data for March. On Thursday NAB will release the quarterly version of its business survey for Q1, providing more detail than in the usual monthly survey. The flash PMI readings for April will close out the week on Friday.

Kiwi services PMI up to 8-month high of 52.4 in March; Q1 CPI in focus
Following last week’s record manufacturing PMI reading, today’s BNZ-Business NZ services PMI pointed to a much more modest improvement in service sector activity in March. The headline PMI increased 2.7pts to 52.4, which is nonetheless the highest reading since July. In the detail, the activity index increased 3.4pts to 54.4 while the new orders index increased 5.8pts to a 5-month high of 56.9 and the employment index increased 0.7pts to 51.8. Looking ahead, the only Kiwi economic report of any interest over the remainder of the week is Wednesday’s Q1 CPI report. According to Bloomberg’s survey, the median analysts expects the headline CPI to have increased 0.8%Q/Q – a relatively robust result that is influenced by seasonal factors – which would likely nudge annual inflation up to a still relatively subdued 1.5%Y/Y (base effects mean that a much larger increase is certain to occur in Q2). As always, analysts will pay close attention to the composition of inflation and to the various measures of core inflation, especially with recent business surveys pointing to a marked lift in the proportion of firms seeking to raise prices in coming months. 

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