German goods trade data surprised on the upside

Chris Scicluna
Emily Nicol

German trade surplus widens as export values rebound despite declines in shipments to Russia; euro area investor sentiment to remain downbeat; ECB account to be watched closely on Thursday
There was an upside surprise to this morning’s Germany’s trade figures, with the goods trade surplus widening in February by €8bn on the month to €11.4bn, nevertheless still well below the pre-pandemic five-year average (€18bn). The improvement reflected a solid rebound in the value of exports in February (6.4%M/M), which outpaced the bounce back in the value of imports (4.5%M/M). Among the detail, there were strong shipments to other euro are member states (9.2%M/M), as well as an increase in the value of exports to China (6.4%M/M) and the US (2.7%M/M). But while sanctions on Russia were only strengthened towards the end of the month, export values to that country still fell by more than 6%M/M, with German imports from Russia down by more than 7%M/M – a trend that seems likely to be even more striking in March. Overall, in the first two months of the year, export values were up 1.6% compared with the Q4 average, with the value of imports up 2.0% on the same basis. However, these figures continue to be flattered by higher prices – indeed, when adjusting for such effects, the Bundesbank measure of export volumes was trending so far in Q1 around 1½% lower than the Q4 average, with import volumes down a much steeper 3.6%.

Perhaps of more interest in terms of economic conditions since the Russian invasion, will be the release later this morning of the euro area Sentix investor confidence survey for April, which, following the second-largest monthly drop in the headline index on the series last month, is expected to reveal a further more modest deterioration in sentiment as the Russia-Ukraine war persists. The headline indicator is expected to fall to the lowest reading since November 2020 but remain well above the trough at the onset of the pandemic. However, the final March services PMIs (tomorrow) are likely to provide a reminder that normalisation of economic activity from the pandemic restrictions is providing a boost to offset some of the weakness associated with high inflation and the Ukraine war. The same day, German car production and registrations data will highlight the sector’s ongoing supply challenges, which will have been exacerbated by the situation in Ukraine.

Meanwhile, February figures for German orders (Wednesday), as well as French, German and Spanish IP (tomorrow, Thursday and Friday respectively) are also due, although these will largely reflect conditions before the Russian invasion. Other data of note this week will be euro area retail sales for February on Thursday. At the start of the year, retail sales could only muster a minimal rise of 0.2%M/M, well below expectations. And any rebound in February following the relaxation of pandemic restrictions seems likely to be limited by the adverse impact of high inflation on real disposable incomes. Euro area PPI inflation figures for February will be of note on Wednesday, and accompanied by the construction PMIs for March.

Ahead of the forthcoming ECB policy meeting on 14 April, market participants will be watching closely for any commentary from policy makers ahead of the pre-meeting seven-day blackout period. President Lagarde will attend the Eurogroup meeting at the start of the week, while on Wednesday, Executive Board members de Guindos and Schnabel will speak at a conference on financial integration and stability. Chief Economist Lane is also in action on Wednesday, taking part in an economic forum panel discussion, while Friday will see Panetta give a speech. The account of the ECB’s March policy-setting meeting, to be published on Thursday, will offer an insight into the initial debate on the expected economic impact of, and appropriate policy response to, Russia’s invasion of Ukraine.

Finally, the coming week will bring final campaigning ahead of the first round of the French Presidential election on 10 April. With Marine Le Pen having seen her ratings improve over recent weeks as regained support from fellow far-right populist Eric Zemmour, we fully expect her to progress through to the second round to go head to head with Emmanuel Macron. We maintain our strong expectation – in line with the polls – that Macron will be re-elected by a clear margin in the second round on 24 April, albeit by a narrower margin than his 66%-34% victory in 2017.

Japanese household spending to have fallen, amid ongoing subdued wage growth; March surveys set to point to modest improvement
After a quiet start to the week for Japanese economic news, tomorrow will bring February household spending numbers, which will be followed by the BoJ’s consumption activity indices – often a better gauge for the national accounts measure household consumption – on Thursday. These are expected to have remained weak as Covid restrictions remained in place and rising prices squeezed household budgets. Indeed, the latest labour earnings number (also tomorrow) are expected to show that total wage growth eased to just 0.6%Y/Y in February, to leave real wage growth in negative territory for the fifth month out of the past six. Meanwhile surveys are expected to point to a pickup in services activity as restrictions were relaxed towards the end of the month. In particular, the final PMIs are due tomorrow, with the economy watchers’ indices out on Friday. That day will also bring the latest consumer confidence survey, of which the price expectations series will be of particular interest. In this context, the BoJ’s quarterly consumer opinion survey (Thursday) will also be closely watched.

MPC members in action today; car registrations, final PMIs and REC jobs report to offer updates on conditions in March
This week’s UK data calendar brings a smattering of releases, beginning with new car registrations data for March (tomorrow), which are expected to reveal that supply bottlenecks and the hit to demand from declining real incomes kept new sales well below the pre-pandemic levels. Tomorrow will also bring the final services and composite PMIs, followed by the construction PMI for March on Wednesday. The flash release revealed that the services activity index rose a further 0.5pt to 61.0 in March, the highest since June, as relaxing Covid restrictions, a return to offices and pent-up demand for travel and hospitality provided a boost. So, despite more challenging conditions in the manufacturing sector, the preliminary composite PMI slipped only slightly in March, by 0.2pt to a still-elevated 59.7, the second-highest reading of the past nine months. The headline construction PMI activity index is expected to remain elevated after rising to an eight-month high in February of 59.1. At the end of the week, the REC report on jobs will provide an insight into recent trends in recruitment, vacancies and earnings. A number of MPC members have public engagements this week, with Governor Bailey, Deputy Governor Cunliffe and external representative Mann speaking separately today, and Chief Economist Pill speaking on Thursday.

FOMC minutes in focus on Wednesday; factory orders, trade and services ISM also due
Further clues on the Fed’s next policy steps might emerge this week with the minutes of the FOMC due for release on Wednesday. There’s plenty of Fed-speak to come too, with NY Fed President John Williams and Board Governor Lael Brainard both scheduled to speak tomorrow. Data-wise, a lighter week for top-tier releases kicks off today with February factory orders figures, which Daiwa America’s economists expect to report a modest decline (0.2%M/M) after the preliminary durable goods orders numbers reported the first drop in the core (ex-transport) component in twelve months. Tomorrow will bring the March services ISM survey results along with final trade data for February. Following back-to-back declines, the headline index is expected to rise sharply as activity started to normalise after the Omicron wave and the employment component likely returned back above 50. Thereafter, there will be few headline-grabbers although Thursday’s jobless claims figures will be watched as ever, while wholesale trade and inventory data on Friday could impact forecasts.

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