Japan’s goods trade deficit narrowed

Chris Scicluna
Emily Nicol

Japanese exports and imports fell sharply in December, suggesting negligible support to GDP growth from net trade in Q4
Today’s Japanese goods trade report saw the deficit narrow in December to a seasonally-adjusted ¥1.7bn, the smallest for eight months, while the unadjusted trade balance recorded the first sub-¥2trn deficit in five months. But this principally reflected a decline in the value of imports (down 3.4%M/M), due in part to the decline in energy prices. Indeed, the annual rate of import growth slowed almost 10ppts in December to 20.6%Y/Y, the softest increase since April 2021, with the rise in imported mineral fuels down a further 16½ppts to 44.1%Y/Y, more than 100ppts below the peak earlier this year. But the value of exports also fell sharply (-3.4%M/M, down 9½ppts to 11.5%Y/Y, the lowest for eleven months), as shipments to China fell (-6.2%Y/Y) amid the rise in Covid-related disruption at the end of last year. When adjusting for price effects, the BoJ’s seasonally-adjusted measure of exports volumes reported an even steeper drop (-4.7%M/M), albeit leaving exports up marginally on the quarter in real terms (+0.7%3M/3M). But with imports volumes following a similar pattern (-4.0%M/M, +0.5%3M/3M), today’s report suggested that net goods trade offered negligible support to GDP growth in Q4.

RICS survey points to significant negative momentum in the UK residential property market
The RICS residential market survey released overnight suggested that downwards momentum on UK house prices increased towards year-end. A net balance of -42 of respondents saw house prices rising in December, the lowest share since October 2010, as the increase in mortgage rates since the summer, along with the rising cost of living and big uncertainty about the economic and market outlook all took their toll. The index of new buyer enquiries weakened to the second lowest level (-39.3) since the first wave of Covid-19, only beating October’s reading which suffered from the marked impact of the Truss crisis on mortgage rates and availability. Uncertainty has also hit housing market supply, however, with the balance for new vendor instructions down to a fifteen-month low (-22.7). Given weaker demand and supply, the survey index of sales expectations dropped further to -54.4, a series low apart from the first two months of pandemic lockdown. Home price expectations three months ahead (-65.8) were the most negative on the series bar the first wave of Covid and initial aftermath of the collapse of Lehman Brothers in 2008. And while not quite as bad as November’s reading, price expectations twelve months ahead remained highly negative (-57.2) at the second-lowest level on the series. Overall, therefore, the RICS survey made for a very downbeat assessment of the UK residential property market.

Looking ahead, the BoE credit conditions survey is expected to report a tightening of financial conditions last quarter, while the supply of available consumer credit is likely to have declined amid ongoing economic uncertainties and demand for secured lending is likely to have fallen for a second-successive quarter.

ECB account from December’s policy-setting meeting in focus
Focus in the euro area today will be on the publication of the ECB account from the December monetary policy meeting. That saw the Governing Council moderate the pace of tightening to 50bps, taking the deposit rate to a broadly neutral level of 2.00% and the cumulative tightening since July to 250bps. However, the ECB’s message regarding the outlook for rates was hawkish, making clear its desire to shift policy into a restrictive stance, while the Governing Council also announced that quantitative tightening will start from March onwards. Contrasting a Bloomberg report earlier in the week that suggested the ECB staff is now considering the possibility of a further slowing in the pace of tightening from March, one of the Governing Council’s most vocal hawks Klaas Knot this morning reinserted spoke of “plans for multiple 50bps rate hikes” this year. And so, further details on the debate between the doves and the hawks surrounding last month’s decisions will be of interest in today’s account. Separately, ECB President Lagarde will speak in a panel discussion in Davos on “finding Europe’s new growth”, where she might well give her own view about the appropriate quantum of tightening still to come.

US housing starts expected to fall to lowest level since June 2020
In the US, today will bring the latest housing starts figures for December. Elevated inventories of unsold new homes and sluggish demand suggest that builders could trim single-family starts for the tenth month decline in the past twelve and leave activity at the lowest level of the year. While multi-family starts have been relatively well maintained, overall housing starts are expected to have declined for the eighth month out of the past twelve and to their lowest level since June 2020. Meanwhile, following the slump in the New York Fed sentiment indicators earlier in the week, today will bring the Philly Fed business outlook survey, while the usual weekly jobless claims figures are also due. 

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