Japanese exports slip back in December but so do imports, so net trade likely boosted GDP growth in Q4
There were no major surprises from the overnight release of Japan’s December goods trade report. The annual pace of export values growth eased from November (by 3ppts to 17.5%Y/Y) but nevertheless slightly exceeded expectations, while growth in import values remained above 40%Y/Y for the second successive month. The slowdown in the growth of shipments to elsewhere in Asia was more striking than the headline figures (down 8.1ppts to 16.6%Y/Y), and to the EU (down 6.7ppts to 9.7%Y/Y). But this was partially offset by an acceleration in exports to the US (by 12.1ppts to 22.1%Y/Y), driven by an increase in machinery and autos shipments. When adjusting for the marked shifts in prices seen over the past year, total export volumes were up just 2%Y/Y, as shipments to China fell 5.6%Y/Y, the most since March 2020, while exports growth to the US and EU were more modest than the values suggested at 3.5%Y/Y and 6.8%Y/Y respectively. Likewise, contrasting the big number for growth in values terms, import volume growth was very subdued at just 1%Y/Y.

When also adjusting for seasonal effects, the BoJ’s volumes series suggested that export volumes fell by more than 1%M/M in December. And so despite a whopping 9.1%M/M increase in November, exports were down a little less than 1%Q/Q in Q4, admittedly better than the near-3%Q/Q decline in Q3. Moreover, import volumes were down a steeper 1.6%Q/Q in Q4, suggesting that net goods trade provided a modest boost to GDP growth last quarter. Of course, with Japan having reintroduced travel restrictions in light of the Omicron variant it seems unlikely that services trade provided any support to growth at the end of 2021.

German producer price inflation smashes records to flag upside risks to CPI outlook
In terms of data, German producer pressures intensified significantly at the end of last year, with industrial PPI smashing previous records to raise uncertainty about the extent of additional pass-through to consumer prices to come this year. In particular, industrial producer prices rose an unprecedented 5.0%M/M, more than three times the average monthly increase last year, to be up a whopping 24.2%Y/Y. Once again, the culprit was energy, prices of which were up 15.7%M/M to be up 69.0%Y/Y. Natural gas prices were 121.9%Y/Y with electricity prices were up 74.3%Y/Y. Excluding energy, industrial producer prices were nevertheless still up 10.4%Y/Y, similarly a series high, with evidence of broad-based pressures related to supply bottlenecks and higher prices of inputs. Prices of intermediate goods rose 0.9%M/M to be up 19.3%Y/Y with a wide range of items – from metals to wooden items to fertilisers and animal feeds – under pressure. Due not least to rising food prices, prices of non-durable consumer goods rose 0.8%M/M and 4.7%Y/Y. Prices of durable consumer goods were up 0.8%M/M and 3.7%Y/Y as prices of furniture were up 4.9%Y/Y. compared to December 2020, mainly caused by the price development of furniture (+4.9%). compared to December 2020 and rose by 0.8% compared to November 2021. And while capital goods prices rose ‘just’ 0.3%M/M they were still up 3.8%Y/Y pressured not least by prices of computers (up 18.5%Y/Y).

INSEE survey reports adverse impact of pandemic wave on French service sector at start of 2022
In light of the surge in coronavirus cases over the festive period in France, this morning’s INSEE business survey – which gave an indication of what to expect from the next week’s flash PMIs – reported a modest decline in overall sentiment at the start of the New Year. Indeed, the headline sentiment index fell 2pts in January to 107, its lowest since April but nevertheless still significantly higher than during the first year of the pandemic and comfortably above the long-run average. The slowdown was unsurprisingly driven by services, with a sharp deterioration in activity in the accommodation and food subsectors. The overall services sentiment index (105) was still above the long-run average, but down 9pts from November’s level. While confidence among construction firms also eased, it remains at an extremely elevated level (113) and the drop largely reflected ongoing supply constraints. But encouragingly, sentiment among manufacturers bucked the trend, with the respective index rising (up 2pts to 112) to its highest since February 2018 benefitting from strong order books, improved past production and a modest easing in supply difficulties.

ECB account to report on range of views surrounding December’s decision to slow pace of asset purchases
One focus in the euro area later today will be the publication of the account of the ECB monetary policy meeting of 16 December, when the Governing Council decided to slow its net asset purchases steadily over the course of this year. In particular, the account will likely confirm that the decision to end the net PEPP purchases at the end of March was widely endorsed but that a range of views existed with respect to the plans for regular APP purchases thereafter. The account will also probably highlight differing views regarding the chances that the preconditions for a rate hike might be met later this year or – more likely – in 2023.

Final euro area CPI data for December, due this morning, are expected to align with the flash figures, which suggested that headline inflation edged up 0.1ppt in December to a new series high of 5.0%Y/Y, while core CPI held steady at 2.6%Y/Y, also a record high.

UK RICS survey points to ongoing demand-supply imbalances to keep prices elevated
Today’s RICS residential survey signalled that strong UK house price growth had been maintained at the end of last year despite the BoE’s decision to raise interest rates and expectations of more hikes to come over the near term. Indeed, the survey’s headline price balance (69%) was only a touch softer than in November and only 13ppts below the peak in June ahead of the start of the tapering of the government’s Stamp Duty holiday. While there was a slight easing in the number of new buyer enquiries this continued to outpace new properties coming to the market – indeed, inventories on estate agents’ books fell to a new record low. Against this backdrop, surveyors remained relatively optimistic about their expectations for house prices over the coming three months, with sales expectations only a touch below the long-run average too. Of course, it remains to be seen whether this optimism is maintained when interest rates continue to rise, with our expectation now for 3 hikes in Bank Rate in total this year.

US existing home sales and Philly Fed manufacturing index due for release
Today’s US economic data focus will remain on residential property, with December’s existing home sales numbers due for release. Daiwa America’s Mike Moran expects to see a pickup in sales last month consistent with the increase in mortgage applications and elevated readings on pending home sales over recent months, forecasting an increase of 0.6%M/M. The latest Philly Fed manufacturing survey is also due and might well echo the finds of the Empire Manufacturing index from earlier in the week that suggested some adverse impact from the spread of the Omicron variant. Weekly jobless claims numbers are also due.