BoJ’s exports reveal a rise in shipments of autos to US

Chris Scicluna
Emily Nicol

Japan’s exports data suggest a surprising rise in shipments of autos to US; flash PMIs to signal recovery momentum; Tokyo CPI numbers to reported a modest pickup in inflation
A relatively quiet start to the week for Japanese data releases brought just the BoJ’s detailed breakdown of its estimates of seasonally adjusted trade volumes in October. These suggested a pickup in shipments to the US, which rose for the first time in four months (8.0%M/M), in part – and perhaps surprisingly – reflecting a 5%M/M increase in exports of motor vehicles. But this still left auto shipments almost 20% lower than the average in Q3. And export volumes to China and elsewhere in Asia fell back in October, to leave them more than 3% lower than the Q3 average, while shipments to the EU remained almost 5% lower than in Q3 despite a modest pickup in October (0.9%M/M). Overall, total export volumes fell 0.1%M/M in October. But with import volumes down a much steeper 5.4%M/M, these data suggest that net trade provided a boost to GDP growth at the start of the fourth quarter.

When Japanese markets reopen after tomorrow’s Labour Thanksgiving day, Wednesday will bring the flash PMI surveys for November, which are expected to signal a pickup in recovery momentum in the services sector as economic conditions continue to normalise amid the conclusion of the state of emergency and steady decline in coronavirus cases. Manufacturers, however, are likely to flag ongoing supply-chain difficulties. Wednesday will also bring the BoJ’s measures of underlying inflation for October, which will be followed by services PPI numbers for October on Thursday and the Toyko CPI figures for November on Friday. Not least given further upside pressures to energy prices, headline inflation is expected to have risen 0.3ppt to 0.4%Y/Y, which would be the highest rate since July 2020. Indeed, when excluding energy and fresh food, core CPI is expected to have risen just 0.1ppt to -0.3%Y/Y.

Euro area survey indicators and ECB account and commentary to be watched as pandemic concerns continue to mount
With coronavirus cases rising across several member states and partial lockdown restrictions having being reimposed in the Netherlands, Austria and Germany, this week’s survey data will be watched closely for signs of harmful economic side-effects. After the flash Commission consumer confidence indicator this afternoon, tomorrow will bring the November flash PMIs. Putting the pandemic to one side, with higher prices eroding household disposable income, consumer confidence always seemed likely to have moderated this month. And with firms facing persistent supply bottlenecks, labour shortages and still-elevated input costs, the PMIs had also seemed likely to point to a further moderation in recovery momentum this month – indeed, the composite activity PMI had already weakened last month, dropping 2ppts to a six-month low of 54.2.

Beyond the data, Thursday will bring publication the ECB’s account from its 28 October Governing Council meeting, after which President Lagarde tried to push back on market pricing of a rate hike in 2022 but also suggested that the PEPP programme was likely to conclude in March. The account will be watched closely for any insights into what might be announced at December’s policy-setting meeting regarding the future path of asset purchases. However, the reinvigoration of the pandemic since that meeting might render some of the analysis out-of-date. As such, the commentary from various Governing Council members – which today includes the Austrian Holzmann, who up to now been among the most hawkish and arguably complacent about the outlook for the pandemic – will be closely watched.

After more equivocal commentary from the BoE, MPC-speak and survey indicators the UK focus this week
Ahead of next month’s key monetary policy meeting, senior BoE MPC members continue to talk in riddles about how they might vote. In an interview in yesterday’s Sunday Times, Governor Bailey noted how we’re in “a fairly febrile world”, and repeated that “There are risks both ways”. Chief Economist Huw Pill, however, suggested that, with inflation higher, the “burden of proof” had shifted, so he was “looking perhaps for reasons not to hike rates”. Bailey will talk publicly again on Thursday, while Pill will do so again on Friday But the more dovish external members Haskel (Tuesday and Thursday) and Tenreyro (Wednesday) will also talk publicly and might signal how they are likely to vote next month.

Meanwhile, as in the euro area, November business surveys dominate the UK’s dataflow in the coming week, with arguably most noteworthy similarly being tomorrow’s flash PMIs. After the survey implied an unexpected jump in service sector activity at the start of the fourth quarter, the headline services PMI might have moderated this month as softer consumer confidence amid higher prices and lower real disposable incomes likely weighed on demand. And the manufacturing survey is likely to signal that ongoing supply-side disruption continued to restrain production and keep price pressures elevated. A similar message is expected from the CBI’s industrial trends survey on Wednesday, while the SMMT car production numbers for October (on Friday) will illustrate how these constraints are especially binding in the autos sectors. Thursday will also bring the CBI’s latest distributive trades survey, which will provide an update on conditions in the retail sector in November.

Fed leadership, minutes and commentary the focus this week with spending and trade figures due
Ahead of the Thanksgiving holiday on Thursday, President Biden is now expected to announce tomorrow his chosen candidate to lead the Federal Reserve for the next four years. Reports suggest a finely balanced decision between maintaining continuity with the reappointment of current Chair Jerome Powell and appeasing some political pressures within his party by appointing someone new to the position, presumably Fed Governor Lael Brainard. Such a switch might be expected to have greater implications for Fed regulatory policy than monetary policy. However, after several Fed Governors – including Clarida and Waller – last week hinted that, given the upside surprise to the latest inflation figures and solid employment report, a faster pace of tapering will likely be up for discussion at the next FOMC meeting in December, this week’s minutes from the 3 November FOMC meeting (due Wednesday) will also be closely watched.

The US data calendar kicks off later today with October’s existing home sales and Chicago National Fed activity index, followed tomorrow by the flash PMI surveys and Richmond Fed Manufacturing index for November. A busy day on Wednesday brings updated US GDP data for Q3, expected to confirm the notable slowdown in growth last quarter. Daiwa America’s Mike Moran forecasts only a slight upwards revision from the initial estimate of 2.0%Q/Q annualised. More interestingly, advance goods trade and personal income and spending figures for October, which will include the latest monthly deflators, are also due that. Mike expects the pickup in vehicle sales and retail activity to support a solid rise of 1.0%M/M in personal consumption expenditures. And the strong CPI reading points to another solid gain (0.5%M/M) in the core PCE deflator. 

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