BoJ consumption activity jumps at the start of Q4 amid a rebound in durable goods and services
Like yesterday’s household expenditure survey, the BoJ’s consumption activity index – arguably the most accurate timely guide to the national accounts measure of consumption – suggested that households provided a welcome boost to GDP growth at the start of Q4. In particular, consumption activity rose more than 2%M/M for the second successive month in October, to leave the headline index trending more than 3% above the Q3 average and up 3.6%Y/Y. Growth was again supported by strong increases in durable goods (7.0%M/M) and services activity (2.8%M/M), with the latter up to its highest level since the start of the pandemic. Given the impact of higher prices, nominal consumption was up a stronger 3.1%M/M and 8.5%Y/Y illustrating that, like in other major economies, Japanese consumers continue to get less bang for their buck.

Reuters Tankan points to an unexpected improvement in business conditions in December
With household spending firmer, today’s Reuters Tankan survey reported an improvement in Japanese business conditions heading towards the end of the year. In particular, the headline diffusion index (DI) for large non-manufacturers rose in December by 5pts to 25, the highest since the consumption tax hike in October 2019, with firms in the information and communications subsector among the most optimistic and retailers their most upbeat for ten months. Overall, the average non-manufacturing DI in Q4 was 5pts higher than in Q3. The equivalent DI for manufacturers also rose for the first month in four, by 6pts to 8, driven by a significant improvement in conditions in the autos sector to a sixteen-month high. But this still left the average manufacturing DI in Q4 6pts below the Q3 average. And so, overall, while next week’s comprehensive BoJ Tankan survey will likely suggest a stronger services performance this quarter, it will also suggest flag ongoing challenges in the manufacturing sector.

Chinese exports and imports fall sharply in November
China’s goods trade report came in much weaker than had been expected, further illustrating the negative impact of its zero-Covid policy stance, ongoing adjustments in the real estate sector, and a slowing global economy. In particular, exports slumped 8.7%Y/Y in November, more than twice the expected decline and the most since February 2020. Admittedly, the weakness in exports was exaggerated by a high base a year ago. But there were steep declines in shipments to the US (-25½%Y/Y), Germany (-14½%Y/Y), UK (-16½%Y/Y) and Japan (-5½Y/Y). The impact of weak domestic demand was evident in the first double-digit decline in imports (-10.4%Y/Y) since May 2020. More happily, the authorities today announced 10 new measures to help ease Covid restrictions, including allowing some people to quarantine at home and measures to accelerate vaccinations of the elderly.

German IP drops less than feared in October, but energy-intensive subsectors remain firmly in reverse
German industrial production fared a touch better than expected in October, dropping just 0.1%M/M from upwardly revised growth of 1.1%M/M in the prior month. That left it unchanged from the level a year earlier but still about 5½% below the pre-pandemic level in February 2020. The headline figure was flattered by a surge in construction output, which rebounded 4.2%M/M following weakness over the prior two months. But that was in part offset by a drop in energy output of 7.6%M/M, in part reflecting weather but also likely reflecting efforts by German industry to use less natural gas. Indeed, production by energy-intensive manufacturers fell a further 3.6%M/M to be down 12.6%Y/Y. Within that component, the chemicals subsector continued to retrench markedly, with production down a whopping 6.8%M/M and 21.5%Y/Y. In contrast, overall manufacturing and mining output was down just 0.4%M/M to be still up 0.8%Y/Y, supported not least by output of capital goods (up for the third month and by 1.4%M/M to be up 5.4%Y/Y). However, having rebounded 9.5%M/M the previous month on diminished supply-chain strains, production of motor vehicles dropped 2.1%M/M in October, but were still up 13.9%M/M. Of course, surveys and new orders data point to a likely fall in industrial production over Q4 as a whole, led by continued efforts to conserve energy. However, healing supply chains and accumulated order backlogs should provide some support to limit the extent of the overall contraction in the sector.

ECB consumer expectations survey to be watched for further de-anchoring of price expectations
Also of interest from the euro area today will be the ECB’s monthly consumer expectations survey results. An important focus will be consumer price expectations three-years ahead, which in September were unchanged at 3.0%Y/Y, de-anchored from the ECB’s target. Meanwhile, an updated estimate of euro area Q3 GDP data will include a detailed expenditure breakdown and the member states’ employment figures. Preliminary estimates reported euro area Q3 GDP growth of 0.2%Q/Q, a marked deceleration from the pace of recovery in the first half of the year when growth averaged 0.7%Q/Q, with the expansion in Q3 expected to have been underpinned by household consumption while net trade was likely a drag.

US consumer credit and productivity data due
A relatively quiet day for US top-tier data, with just October consume credit figures and updated productivity numbers for Q3 due for release.