Japanese real wage growth declines by the most in eight years
As the BoJ continued today to defend its 0.50% YCC 10Y yield target ceiling with unscheduled purchases of 5-10Y bonds and another 2Y fixed-rate funds-supplying operation, and its Policy Board continued to finalise its economic forecasts ahead of its 18 January Policy Board meeting, today’s labour earnings figures might have provided some disappointment. In particular, total wage growth unexpectedly slowed in November to 0.5%Y/Y from 1.4%Y/Y in October, to represent the softest rate since 2021. Admittedly, the weakness reflected a slump in bonus payments, which fell more than 19%Y/Y, while overtime earnings slowed 2½ppts to 5.2%Y/Y, possibly in part reflecting slowing economic activity. In contrast, regular wage growth rose ½ppt to 1.5%Y/Y, matching the 25-year high reached in August. Of course, when adjusting for inflation, real regular wage growth remained firmly in negative territory (-2.6%Y/Y). And total real wage growth slumped 0.9ppt to -3.8%Y/Y in November, the weakest since 2014 and suggestive of a weak end to the year for household consumption. Overall, the disappointing figures might well reaffirm the Policy Board’s desire to await signals from the forthcoming spring wage round before further adjusting the YCC policy framework.

German factory orders plunge in November due to sharp drop in capital goods demand
German new factory orders in November fell a whopping 5.3%M/M, the most in more than a year. With growth in October revised down to 0.6%M/M, that left orders down a steep 11.0%Y/Y, more than 5% below the pre-pandemic level in February 2020, roughly 20% below the peak in July 2021, and at the lowest level since July 2020. To some extent, the magnitude of the drop in orders reflected bulk items, excluding which orders nevertheless dropped a marked 2.9%M/M. The decline in new orders was led by foreign orders (down 8.1%M/M), particularly orders from the rest of the euro area (down 10.3%M/M). Orders of capital goods dropped 8.5%M/M, reflecting weakness in machinery and vehicles outside of the auto sector. The decline in orders of consumer (0.7%M/M) and intermediate items (-0.9%M/M) were much more modest. Despite the exceptionally weak figures for new orders, manufacturing turnover rose 2.1%M/M in November, suggesting upside risks to the consensus forecast for Monday’s German IP data (currently +0.1%M/M).

German and French consumer spending on goods up in November but euro retail sales still on track for drop in Q4
Contrasting the drop in factory orders, German retail sales rose in real terms in November, up 1.1%M/M. That, however, was smaller than expected and followed a drop of 2.8%M/M in October, so sales were still down a steep 5.9%Y/Y. And the average level of real retail sales in the first two months of Q4 was 1.7% below the Q3 average, suggesting the likelihood of a drop over Q4 as a whole. Given higher prices, however, the value of German retail sales rose 1.3%M/M in November to be up 4.8%Y/Y. French data this morning reported a smaller-than-expected rise in consumer spending on goods of 0.5%M/M in November, which followed a drop of 2.7%M/M the prior month. So, the euro area figures due later this morning are likely to report a rise in retail sales in November, albeit probably less than 1%M/M to leave them similarly trending below the Q3 level.

Euro area headline inflation to fall sharply in December; Commission’s survey to provide update on price expectations
A key focus today will be the euro area flash December inflation estimates. As in Germany, Spain, France and Italy, we expect the headline euro area HICP rate to have fallen on the back of lower energy prices, probably dropping by 0.8ppt to 9.3%Y/Y. However, with services inflation having risen in Germany and Italy, core inflation probably rose above 5.0%Y/Y for the first time. Meanwhile, the European Commission’s economic surveys will provide an update on business and consumer price expectations in December, as well as a wider assessment on economic activity. Beyond the data, later in the day, ECB Chief Economist Lane will speak on a panel discussion on the Global Economic Outlook.

UK construction PMI expected to report that activity contracted at the end of last year
A relatively quiet end to the week for UK releases will bring just the construction PMI survey for December. This is expected to show that the headline index dipped below the key 50 contraction/expansion level for the first time in four months, with activity likely to have been adversely impacted by snow and rail strikes.

US labour market report and services ISM in focus
The focus of a busy end to the week for top-tier US releases will be the December employment report. Our colleagues in Daiwa America expect to see an increase in non-farm payrolls of around 225k, a touch stronger than the Bloomberg survey consensus (202k) but nevertheless marking a slowdown from the average in the previous four months (277k) and well down on the average in the first half of the year (444k). This should be strong enough to leave the unemployment rate unchanged at 3.7%, still too low for the FOMC’s comfort. Average hourly labour earnings growth is expected to slip back to 0.4%M/M - in line with average of the past six months – following an uptick to 0.6%M/M in November to nudge the annual rate down slightly to 5.0%Y/Y. Meanwhile, the services ISM survey is expected to report that the activity index moderated slightly at the end of last year, albeit remaining comfortably in expansionary territory – our colleagues forecast a drop of 1.5pts to 55.0 – while the prices paid component is forecast to have remained sticky at a still-elevated 70.0.