Key economic data/events

Today:
Today’s Japanese tertiary activity data for November fell short of expectations, suggesting that services output fell (-0.3%M/M) for the third month out of the past four. And with growth at the start of the quarter also revised lower (0.1%M/M), this left services output trending in October and November more than ½% below the Q4 average. While the utilities subsector represents the most significant drag so far in Q4, retail and recreation were also trending lower, but hospitality again provided some offset. While today’s data also confirmed that Japanese industrial production declined in November (-2.2%M/M) – led by declines in machinery and autos production – manufacturing output was still trending so far in Q4 some 1½% above the Q3 average. November’s machinery orders data were more encouraging for near-term investment plans, with core orders up for a second successive month and by the most in ten months (3.4%M/M). Elsewhere, in the euro area, construction activity grew for a second successive month in November, by 1.2%M/M supported not least by firm growth in Germany (2.1%M/M). That left it trending so far in Q4 1.2% above the Q3 level. 

Tomorrow:
The key focus will be the UK’s labour market report. Recent surveys including the PMIs, DMP and REC report on jobs point to a further slowdown in employment growth in November in anticipation of the rise in employers NICS contributions and National Living Wage in April, while the ILO unemployment rate is expected to rise 0.1ppt to a six-month high of 4.4%. Pay growth will also be closely watched. After private sector regular wages accelerated to a five-month high in October (5.4%3M/Y), a further pickup is expected in November to point to the risks of an overshoot to the BoE’s projection for year-end (5.1%3M/Y). Elsewhere in Europe, the German ZEW investor survey is likely to point to ongoing significant challenges at the start of the year amid political and economic uncertainties.

Wednesday:
A quiet day for economic releases brings just UK public finance figures for December, which are expected to report net borrowing of £14.2bn, which would leave it broadly in line with the OBR’s end-October projection for the year-to-date (£125.9bn). 

Thursday:
In Japan, December’s goods trade report is likely to show that export volumes rose for the first month in three, although an increase of around 10%M/M in December will be required to avoid a contraction over the fourth quarter as a whole. This notwithstanding, given the recent weakness in import volumes this report is likely to point the first positive contribution from net trade to Japan’s GDP growth in four quarters. In Europe, the Commission’s consumer confidence indicator is expected to rise only slightly from December’s eight-month low, while the French INSEE business survey will likely see little improvement in conditions, with persisting political uncertainties continuing to weigh. The UK’s CBI industrial trends survey will likely point to a further deterioration in business optimism and reduced investment plans over the coming twelve months related to weak demand and economic uncertainties.       

Friday:
All eyes will be on the BoJ’s policy announcement and updated macroeconomic projections. Against the backdrop of above-target inflation and positive signals from the current Shunto spring wage negotiations round, and in the absence of significant market turbulence following US President Trump’s inauguration, we expect the Board to raise the policy rate by 25bps to 0.50%. The decision will be supported by an upwards revision to the Board’s median forecast for inflation. Indeed, against the backdrop of December’s CPI report (also due Friday) – expected to report that headline inflation rose to a 20-month high of 3.4%Y/Y, while core inflation (excluding fresh foods) rose to a 16-month high of 3.0%Y/Y as the government’s energy subsidies continue to be scaled back – the BoJ is expected to nudge higher its FY24 and FY25 core CPI projections, by 0.1ppt to 2.6%Y/Y and 0.2ppt to 2.1%Y/Y respectively, while maintaining the FY26 rate at 1.9%Y/Y. When excluding fresh foods and energy, the BoJ’s preferred core inflation rate is likely to remain at or above the 2% target across the forecast horizon. And Governor Ueda will likely suggest that rates will be hiked further if economic data continue to validate the BoJ’s projections.   

The flash January PMIs from the major economies will provide an important update on economic momentum at the start of 2025. We expect the headline euro area composite PMI (49.6 in December) to remain slightly below 50 for a third successive month with ongoing contraction in manufacturing and sluggish activity in services, while the survey will underscore that weakness remains more acute in the largest two member states. In the UK, a modest fifth successive monthly decline in the headline composite PMI, from a stagnant 50.4 in December, might seem likely, while recent downbeat markets might also pose a downside risk to the latest GfK consumer confidence and CBI distributive trades surveys. Finally, US existing home sales figures and updated UoM consumer confidence survey are also due.