German factory orders rebounded

Chris Scicluna
Emily Nicol

Amamiya reportedly approached for BoJ Governor role but selection process reportedly ongoing and nominations may be delayed beyond the end of this week
Focus in Japan at the start of the week was firmly on the race to succeed Kuroda as BoJ Governor from early April, with a Nikkei report suggesting that the government had approached current Deputy Governor – and key architect of BoJ Yield Curve Control – Masayoshi Amamiya to take the role. Of all the touted candidates, Amamiya is widely considered to prefer the most gradual approach to exiting the current policy settings, with former Deputy Governor Yamaguchi judged likely to be far more aggressive. So, the yen initially depreciated on the report to its weakest level since mid-January. But a government spokesman subsequently denied the suggestion that Amamiya had been offered the role, noting that the process was still ongoing. Indeed, the Nikkei report suggested that the government plans to submit a list of candidates for the leadership roles to the Diet only by end-February, suggesting a delay from the initially expected announcement this Friday.

Wages key focus of Japanese data this week
In terms of economic data, the key release in Japan will be tomorrow’s labour earnings figures for December. The Bloomberg survey consensus is for an increase in headline wage growth, by around ½ppt to 2.5%Y/Y, which would be the strongest rise since June 2018, likely in part reflecting firmer winter bonus payments. This notwithstanding, real wage growth is strongly expected to remain negative. And with consumer confidence still historically weak, tomorrow’s spending figures, with releases due from the BoJ and Japan’s statistical office, will likely suggest that consumption was relatively subdued in December, albeit consistent with positive growth over the quarter as a whole. At the end of the week, the latest goods PPI data for January are scheduled for release.

German factory orders rebound in December but still down significantly in Q4
Broadly as expected, German factory orders rebounded somewhat at the end of 2022, rising 3.2%M/M in December. Domestic orders rose 5.7%M/M, while orders from elsewhere in the euro area up almost 10%M/M but orders from the rest of the world down 3.8%M/M. Despite the growth in December, total new factory orders were still down 10.1%Y/Y and more than 16% below the peak in July 2021, albeit 1.2% above the level at the end of 2019 ahead of the pandemic. The firm rebound in December reflected payback for the marked weakness the prior month, when orders fell (a revised) 4.4%M/M, with the month-to-month volatility associated with large-scale orders. Indeed, excluding such items, new factory orders fell for a fourth successive month and by 0.6%M/M. Over the fourth quarter as a whole, total orders dropped a chunky 3.3%Q/Q (and 4.8%Q/Q excluding bulk orders), flagging risks of weakness in production in Q1. Looking ahead to tomorrow’s German IP data, this morning’s figures will have reaffirmed expectations of a soft end to the year, with a drop of 1.7%M/M in manufacturing turnover in December, following revised growth of 2.5%M/M the prior month.

Euro area retail sales likely to have slumped at the end of 2022
Later this morning, euro area retail sales figures for December are due. While last week’s GDP estimates suggested that the economy posted modest growth in the final quarter of 2022, today’s figures are expected to report a marked decline in household spending on goods at the end of the year. Indeed, last week’s German retail sales data recorded the steepest monthly drop (-5.5%M/M) since the consumption tax hike in January 2007 bar pandemic lockdown-related disruption. Today will also bring the euro area Sentix investor confidence survey for February, along with the construction PMIs for January. In addition, Thursday will bring the delayed German preliminary inflation estimates for January, with a very wide range of analyst forecasts. While the median forecast on the Bloomberg survey is for a rise in the EU-harmonised measure 0.4ppt to 10.0%Y/Y, last week’s flash euro area figure implied a drop in Germany. Meanwhile, President Lagarde and Executive Board member Schnabel will speak at separate events tomorrow – expect the main message from last Thursday’s Governing Council announcements to be repeated, perhaps with attempted push back against the initial rally in euro government bonds.

Q4 GDP figures the UK highlight this week, with the economy likely to have moved broadly sideways
This week’s main UK release will come on Friday, in the form of the first estimate of Q4 GDP and associated monthly output and trade figures for December. Not least reflecting the weakening in demand amid high inflation, rising borrowing costs and heightened economic uncertainties, we expect GDP to have fallen moderately in December. Indeed, we forecast a drop of 0.7%M/M, to leave overall economic output broadly flat in Q4, with consumer spending subtracting from growth. That would leave the UK as the only G7 economy with output still below the pre-pandemic level. Ahead of the GDP release, January surveys will include the construction PMIs (today), BRC retail sales monitor (tomorrow), REC report on jobs (Wednesday) and RICS residential market indicators (Thursday). In terms of BoE-speak, Governor Bailey and external member Mann will present at a conference today, while Chief Economist Pill and Deputy Governor Ramsden will speak at a various events during the week.

US consumer sentiment and inflation expectations measures in focus
It will be a particularly quiet week ahead for US economic releases, with arguably the most noteworthy being the preliminary University of Michigan consumer survey for February on Friday. The headline sentiment index is expected to have risen slightly this month, to its highest level since last April, reflecting lower gasoline prices and recovery in equity markets. However, any improvement will be limited by ongoing recessionary concerns. Focus will also be on the survey’s inflation expectations measures. Ahead of this, the week will bring the full trade figures for December (tomorrow), which are likely to confirm a widening of the trade deficit, underpinned by a worsening in the advance goods trade deficit (by $7.4bn to $90.3bn). The surplus in services trade might also cool after back-to-back increases pushed it to the top of the range of the past few years. In addition, Fed Chair Powell is due to speak on the economic outlook tomorrow.

Headline Chinese CPI expected to have risen slightly, but core inflation to remain subdued and PPI inflation in negative territory
Friday will bring the latest Chinese inflation numbers for January, which are expected to report a modest increase in headline inflation, by 0.4ppt to 2.2%Y/Y. But core inflation is likely to have remained very subdued at below 1%Y/Y for the seventh consecutive month. And headline PPI is forecast to have remained in negative territory for the fourth consecutive month. 

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