German factory orders point to another weak month for manufacturing

Emily Nicol
Chris Scicluna

Downtrend in German orders maintained despite a rebound in exports in November
This morning’s German factory orders data came in on the soft side, with orders rising just 0.3%M/M in November despite having plunged 3.8%M/M in October. This left orders down a whopping 4.6%3M/3M, with orders of capital goods down 8.0%3M/3M and consumer goods down 4.4%3M/3M, despite a modest rise on the month in both. Admittedly, orders data are notoriously volatile and have recently been distorted by bulk orders. But when excluding major items, orders fell for a third consecutive month in November (-0.6%M/M), to be down 1.4%3M/3M at their lowest level since July 2020, and the euro crisis when excluding the initial Covid-19 slump. Among the other detail of today’s release, manufacturing turnover fell for the sixth consecutive month, by 0.7%M/M, to leave it down 2.6%3M/3M, which suggests that German industrial production figures (due tomorrow) will fall short of the Bloomberg survey consensus for a rise of 0.3%M/M following five successive monthly declines. Despite the persisting manufacturing weakness, today’s goods trade figures reported a significant upside surprise to exports in November, with the rise of 3.7%M/M in export values the largest since February 2022. And so, despite the first rise in import values in six months (1.8%M/M), the trade surplus rose €2.7bn to €20.4bn, the largest since January 2021.

Commission survey likely to report little improvement in business conditions amid subdued demand
In the euro area, the European Commission’s business and consumer surveys for December (due today) arguably represent the most noteworthy release from the euro area this week and will provide an update on economic momentum into year-end. But like the PMIs, these are likely to report little improvement in business conditions amid subdued demand. So, despite the improvement in the flash consumer confidence index, the headline economic sentiment index will remain below the long-run average and at a level consistent with a modest contraction in GDP in Q4. Euro area retail sales data for November – also due today – look set to report a marked decline in November, led by the significant drop in Germany (-2.5%M/M) as well as ongoing weakness in France (-0.8%M/M). Among other top-tier data releases this week, euro area jobless figures (tomorrow) are expected to see the unemployment rate tick slightly higher from October’s joint-record low (6.5%).

UK GDP growth expected to reverse the contraction in October, but maintain a sideways trend
A key UK focus this week will be Friday’s release of the November GDP report, including the monthly services, industrial, construction and trade figures. Retail sales came in much stronger than expected in November (1.3%M/M), while the ONS’s business insights survey suggested that the share of firms affected by strikes was the lowest since June 2022. Taken together with a rebound in the composite PMI that month to a four-month high (50.7), we expect GDP growth in November to be a touch firmer than the Bloomberg survey consensus of 0.2%M/M to fully reverse the 0.3%M/M contraction recorded in October, to leave output unchanged on a three-month basis. Given lacklustre growth, the REC/KPMG report on jobs, published overnight, predictably suggested that recruitment remained subdued in December. Indeed, despite implying a softer pace of decline than in November, the survey signalled a sixteenth consecutive drop in permanent placements last month, while temporary billings also fell for a second successive month. Given weaker hiring activity, rising redundancies and lower vacancies, there was a further strong rise in the supply of candidates at the end of last year. This notwithstanding, the survey suggested that starting salaries continued to rise as competition for skilled workers remained intense, although the respective survey index was still the second-weakest since early 2021.

US CPI inflation report key focus this week, with services inflation expected to remain sticky
The main focus in the US this week will be the December CPI report on Thursday. Despite the easing in gasoline prices last month, as well as the ongoing downtrend in food inflation, Daiwa America’s Lawrence Werther forecasts consumer prices to have increased 0.2%M/M – in line with the Bloomberg survey consensus – underpinned by another firm showing services prices reflecting continued inflationary impulses from rents and owner-occupied housing costs. Indeed, core prices are expected to have risen 0.3%M/M, although that would still leave the annual rate down 0.2ppt to 3.8%Y/Y. Meanwhile, headline inflation is forecast to have ticked up 0.1ppt to 3.2%Y/Y. Producer price inflation figures will follow on Friday, while November’s trade figures (tomorrow) are likely to confirm a slight widening in the overall deficit (by $0.7bn to $65bn) in line with the deterioration in the advance goods trade figures published at the end of last year.

Japanese inflation, wages and BoJ Governor Ueda’s speech to Branch managers in focus this week
Given the BoJ’s focus on both inflation and wage developments, attention in Japan will be on the Tokyo CPI figures for December (tomorrow) and November’s labour earnings report (Wednesday). With pressures from import prices starting to fade and pricing power diminished by subdued consumer spending, headline inflation is forecast to decline for a second successive month, by 0.2ppt to a seventeen-month low of 2.7%Y/Y. When excluding fresh foods, the BoJ’s forecast measure of inflation is also expected to have eased 0.2ppt to 2.1%Y/Y, similarly the lowest since June 2022. But when excluding fresh foods and energy, the BoJ’s preferred measure of core CPI is expected to have remained relatively elevated, down just 0.1ppt at 3.5%Y/Y. Meanwhile, having jumped to a four-month high in October, headline wage growth is forecast to move sideways at 1.5%Y/Y in November, to leave real wage growth at a five-month high, albeit still firmly in negative territory (-2.0%Y/Y). The BoJ’s Regional Economic Report and Governor Ueda’s speech to BoJ branch managers on Thursday will also be closely watched.

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