Japanese vehicle sales remain in reverse, manufacturing PMI signals weakness ahead despite upwards revision
After yesterday’s industrial production numbers revealed a significant slump in autos production at the start of the year (down 17.5%MM) today’s new vehicle registrations were inevitably weak. In particular, sales were down 18.6%Y/Y to 214k units, with car sales at just 185k, both the weakest February outturns since the series began in 1980. And with pandemic-related containment measures still in place and car manufacturers continuing to suffer from the global semi-conductor shortage, we would expect car registrations to remain subdued for the time being.

Certainly, the final manufacturing PMIs for February, also published today, confirmed a notable deterioration in manufacturing conditions. Indeed, despite a modest upwards revision from the flash estimate (by 0.6pt) the output component fell a sizeable 5.6pts on the month – the most since April 2020 – to 49.3, the lowest reading since September. And the drop in the new orders component was larger than previously estimated at 4.1pts taking the index to 50.5, similarly a five-month low. But a slight easing of supply constraints allowed manufacturers to replenish their pre-production inventories by the most in the surveys history. This notwithstanding, cost burdens continued to intensify with notably higher raw material prices associated with fuel and electronics, to leave the input price PMI rising 2pts to 74.0, this highest in 13½ years. And while much of these additional costs continue to be absorbed, and the output price PMI slipped back slightly in February, it still implied the third-strongest rate in the survey history.

Chinese PMIs defy expectations of contraction, firming on stronger orders
The official Chinese PMIs for February beat expectations, suggesting a very slight improvement in conditions last month. Contrary to the consensus of a dip into contractionary territory for the first time since October, the manufacturing PMI inched up 0.1pt, albeit remaining at a still highly underwhelming 50.2. Suggesting benefits from recent stimulus measures, the improvement came principally from new orders, for which the domestic PMI rose to the highest in seven months (up 1.4pts to 50.7). And the index for new external demand rose to a ten-month high (up 0.6pt to 49.0), while expectations for future business activity rose to the best in a year (up 1.2pts to 58.7). Less positively, factory output was reportedly weaker (the survey index dropped 0.5pt to a three-month low of 50.4) while cost and output price pressures rose to the highest since October on higher global energy prices. And while large and medium-sized manufacturers were happier, small firms continue to struggle, with the respective index down to the lowest since the first Covid-19 lockdown in early 2020 (45.1).

Beyond the factory sector, the official non-manufacturing PMIs were also a touch firmer, with the headline activity index up 0.5pt to 51.6 despite concerns of continued Covid restrictions. As such, the composite PMI edged up 0.2pt slightly to 51.2. Of course, given the distortion of the Lunar New Year, these data need to be treated with more care than usual. But overall, while we should be wary of additional pain from global energy prices and ongoing adjustments in real estate, and also expect continued policy support, these data certainly could have been much worse.

German and Italian flash figures to be consistent with further big jump in euro area inflation;French car registrations at lowest February level in more than fifty years
Ahead of the euro area’s flash CPI estimate for February tomorrow, this morning brings the equivalent inflation figures from Germany and Italy. The current consensus forecast is for a modest increase in the German EU-harmonised measure, by 0.3ppt to 5.4%Y/Y, while the equivalent Italian rate is forecast to rise 0.4ppt to a record-high 5.5%Y/Y. So far, the initial figures from the states suggest that German inflation could come in a little softer than anticipated (inflation in North Rhine Westphalia rose 0.2ppt to 5.3%Y/Y but the figure for Rhineland Palatinate was unchanged at 4.8%Y/Y). However, we caution that the national data released so far from France, Spain and some smaller member states all surprised on the upside. We currently expect the euro area headline rate to rise by 0.5ppt to 5.6%Y/Y, a new euro-era high.

This morning will also bring initial national new car registration data for February. The French figures out this morning were predictably weak, suggesting a decline of 13%Y/Y, from an already low base a year ago. Indeed, while the unadjusted figures suggested a modest pickup from January, at 115k, it was still the weakest February outturn since 1971 and down by almost one third from the pre-pandemic level.

Finally, the final manufacturing PMIs for the euro area, Germany and France, as well as survey results for Italy and Spain. Are due shortly. The flash survey revealed a modest increase in the euro area manufacturing output PMI, up 0.2pt to 55.6, the third increase out of the past four months and the highest reading since September.

BoE hawks to speak with UK bank lending data also due
In the UK, likely of most interest will be speeches this evening by external MPC members Saunders and Mann, both of whom voted for a 50bps hike in February. Their commentary should be watched for their assessment of the likely impact of the Ukraine conflict on UK GDP and inflation, and hence what that could mean for monetary policy. A less hawkish perspective might suggest that the BoE staff as a whole have become more wary of downside risks, whether due to the sudden marked deterioration in consumer confidence or financial stability concerns related to events in Ukraine.

On the data front, today sees the release of bank lending figures. Consistent with stronger retail sales last month, we would expect to see a further increase in consumer credit in January, while demand for secured lending likely remained robust in line with ongoing strength in the housing market. Like in the euro area, the final UK manufacturing PMI is expected to align with the flash release, which revealed that the manufacturing output PMI rose for the fourth consecutive month, and by 2.2pts to 56.7, a seven-month high, boosted by an easing in supply-side constraints.

ISM manufacturing survey to signal pickup from Omicron weakness
The US dataflow brings the February ISM manufacturing survey results. Daiwa America’s Mike Moran looks for a pickup in the headline index of 0.5pt to 58.0, as the new orders and production components improve following Omicron-related weakness in the prior month.