German trade surplus edges up in September as import prices fall for first time since first wave of Covid
Germany’s goods trade data for September reported an unexpected drop in export values, of 0.5%M/M. That, however, followed upwardly revised growth of 2.9%M/M in August. Over Q3 as a whole, goods exports rose 2.4%Q/Q, a slowdown from growth of 5.8%Q/Q in Q2. Meanwhile, imports were also weaker than expected in September, dropping for the first time since January and by a chunky 2.4%M/M. As such, the goods trade surplus rose €2.5bn from August’s 31-year low to €3.7bn. By country, imports from the UK rose while those from Russia fell, likely reflecting a shift in the source of natural gas imports related to the shutdown of the NordStream 1 pipeline early in the month.

As for exports, German import growth in August was also revised up, to 4.9%M/M, the most since February. So, over Q3 as a whole, imports again outpaced exports, rising 3.8%Q/Q after 10.0%Q/Q in Q2, to leave the 3-month accumulated trade surplus in September at a new near-three-decade low of just €8.6bn. Of course, the drop in German export and import values on the month in September at least in part reflects changes in prices. Import prices that month fell 0.9%M/M – the first decline since the first wave of Covid-19 in April 2020 – due not least to developments in wholesale energy markets. Likewise, export prices also fell in September, dropping 0.6%M/M. Adjusting for price effects, however, over Q3 as a whole, net trade volumes likely again subtracted from GDP growth, even when services trade is also accounted for. However, the likely continued softening of domestic demand and good progress accumulating natural gas inventory raises the possibility of a positive contribution to growth from net trade in Q4.

German jobless claims set to rise for fifth month in a row
Looking ahead, today will also bring Germany’s jobless claims figures for October, with the number seeking work expected to have risen for the fifth consecutive month (by 12.5k), pushing the claimant count rate up to 5.6%, the highest since June 2021. Of course, this rate will still be low by historical standards and the rise would largely reflect the inclusion of additional Ukrainian refugees into the labour force. Indeed, thanks in part to rising labour supply, German employment (on an unadjusted basis) rose in September to a record high.

Final manufacturing PMIs to confirm a significant deterioration in conditions in October
Separately, the final release of the October manufacturing PMI data for the euro area, Germany and France, as well as new survey results from Italy and Spain, is also due shortly. The flash readings suggested a further marked deterioration in manufacturing conditions last month, with the euro area manufacturing output PMI falling more than 2pts from September to 44.2, the lowest level since July 2012 bar lockdown months.

French new car registrations post fourth consecutive increase but remain well down on pre-pandemic levels
New car registration data from Italy and Spain are also due today after the French figures, released this month, recorded the fourth consecutive year-on-year increase (5.5%Y/Y), likely in part due to easing supply-chain constraints. However, this still left sales still roughly one third below the pre-pandemic level in October 2019. Moreover, in the year-to-date, French registrations (1.2mn) were still down around 10% compared with the equivalent period in 2021, and the lowest volume since 1975.

UK shop prices increase at fastest monthly pace since the series began in 2005
According to the BRC, UK shop price inflation jumped again at the start of Q4 as retailers continued to pass on some additional cost burdens amid ongoing supply-side pressures and significant energy expenses. In particular, prices rose 1.3%M/M in October, the largest monthly increase since the series began in 2005, to leave the annual inflation rate up 0.9ppt to a series-high 6.6%Y/Y. Food inflation rose a further 1ppt to 11.6%Y/Y, with non-food inflation up more than 4%Y/Y, not least as prices of furniture and electrical products continued to be magnified by cost pressures amid supply-chain disruption. Taken together with the step up in household energy bills this month and ongoing decline in household disposable income, today’s release further highlighted the likely significant hit to consumption this quarter (and coming quarters too) as consumers continue to get less bang for their buck.

Fed to hike another 75bps, focus on Powell’s guidance for hints of a slower pace of tightening ahead
All eyes tonight will be on the Fed, with the FOMC widely expected to raise the fed funds rate by 75bps for a fourth successive meeting, which will take the target range to 3.75-4.00%. While some market participants had previously anticipated a possible downwards shift in the pace of tightening, recent further upside surprises to inflation, continued labour market tightness and a relatively firm pace of economic growth in Q3 all point to another hike of 75bps. Nevertheless, our colleagues at Daiwa America anticipate a slight pivot on guidance this week. Chair Powell has noted in the past that the Fed will at some point slow the pace of adjustment. And with rates set to be placed in restrictive territory, our colleagues suspect that policymakers will discuss the possibility of a (data-dependant) deceleration to 50bps in December and pause in early 2023. Powell might provide hints along these lines at his press briefing, although he will be mindful not to encourage a significant boost to risk appetite and easing of financial conditions.