Germany GDP contracted -0.2% qoq in Q2, worse than expectation of 0.0% qoq. Comparing to the same quarter a year ago, GDP rose 0.5% in price adjusted term, or 1.1% in price and calendar adjusted term. For 2022 as a whole, GDP grew 1.8% (price adjusted), or 1.9% (price and calendar adjusted).
DeStatis said, After the German economy managed to perform well despite difficult conditions in the first three quarters, economic performance slightly decreased in the fourth quarter of 2022.
Swiss KOF Economic Barometer rose from 91.5 to 97.2 in January, well above expectation of 93.3. That’s the second month of rise in a row, but the index remains below its medium term average. KOF said, “the outlook for the Swiss economy at the beginning of the year is considerably less gloomy than it was in autumn last year.”
KOF also noted: “All bundles of indicators contribute to the improvement. They are developing particularly favourably in manufacturing, hospitality and the services sector. Nevertheless, the indicator bundles for manufacturing and services are below their medium-term average. The indicators for the hospitality sector, on the other hand, jump above the average, so the prospects here are now better than average.”
BoJ Governor Haruhiko Kuroda told the parliament today, “Japan’s trend inflation is likely to gradually accelerate … but that will take some more time.”
“Uncertainty regarding Japan’s economy is extremely high. It’s therefore important now to support the economy, and create an environment where companies can raise wages,” he said.
Separately, a panel of academics and business executives urged BoJ to make the 2% inflation target a long-term goal, to make monetary policy more flexible.
“The way the BOJ conducts monetary policy must be revamped,” Yuri Okina, a candidate for the next BOJ deputy governor.”By making 2% inflation a long-term goal, the BOJ can make its monetary policy more flexible.”
New Zealand goods exports rose 11% yoy or NZD 640m to NZD 6.7B in December. Goods imports rose 1.8% yoy or NZD 125m to NZD 7.2B. Monthly trade deficit narrowed to NZD -475m, comparing to November’s NZD -2180m and expectation of NZD -1750m.
The US leads monthly expect rise, up 40% yoy, while exports to all trade partners were up, including China (up NZD 4.2m), Australia (up 17% yoy), EU up (9.8% yoy), and Japan (up 14% yoy).
The US also leads monthly import rise up 80% yoy. Others were mixed with China down -11% yoy, EU up 3.8% yoy, Australia up 7.0% yoy and Japan up 3.4% yoy.
US personal income rose 0.2% mom or USD 49.5B in December, matched expectations. Spending dropped -0.2% mom or USD -41.6B.
PCE price index rose 0.1% mom while core PCE price index (excluding food and energy) rose 0.3% mom. Prices for goods was down -0.7% mom and prices for services up 0.5% mom. Foods prices rose 0.2% mom and energy prices dropped -5.1% mom.
From the same month one year ago, the PCE price index slowed from 5.5% yoy to 5.0% yoy. Excluding food and energy, core PCE price index slowed from 4.7% yoy to 4.4% yoy. Prices for goods rose 4.6% yoy, services up 5.2% yoy. Foods prices rose 11.2% yoy while energy prices rose 6.9% yoy.
In Japan, Tokyo CPI core (all items ex-fresh food), accelerated from 4.0% yoy to 4.3% yoy in January, above expectation of 4.2% yoy. That’s also the fastest annual increase in nearly 42 years since May 1981.
Headline CPI (all items) rose from 4.0% yoy to 4.4% yoy, matched expectations. CPI core-core (all items ex-fresh food, energy) rose from 2.7% yoy to 3.0% yoy.
New Zealand ANZ Business Confidence improved from -70.2 to -52.0 in January. Own activity outlook rose form -25.6 to -15.8.
Looking at some details, exports intentions rose from -10.0 to -5.4. Investment investment intentions rose form -20.5 to -13.7. Employment intentions rose from -16.3 to -11.1.Pricing intentions rose from 59.1 to 62.4. Cost expectations rose from 84.4 to 91.3. Profit expectations rose from -52.7 to -42.6. Inflation expectations dropped from 6.23 to 5.99.
ANZ said: “Inflation pressures remain intense. Pricing intentions rose 3 points, and cost expectations rose 7 points. Inflation expectations remain stuck around the 6% mark. There’s good reason for the RBNZ to keep hiking a while yet (we are picking +50bp in February).”
US initial jobless claims dropped -6k to 186k in the week ending January 21, below expectation of 211k. Four-week moving average of initial claims dropped -9k to 197.5k.
Continuing claims rose 20k to 1675k in the week ending January 14. Four-week moving average of continuing claims dropped -11k to 1664k.
US durable goods orders rose 5.6% mom to USD 286.9B in December, above expectation of 2.5% mom. Ex-transport orders dropped -0.1% mom to USD 178.8B, below expectation of 0.0% mom. Ex-defense orders rose 6.3% mom to USD 269.6B. Transportation equipment rose 16.7% mom to USD 108.1B.
US exports of goods dropped -1.6% mom to USD 166.8B in December. Imports of goods rose 1.9% mom to USD 257.1B. Goods trade deficit rose 8.8% mom to USD -90.3B, versus expectation of USD -88.8B.
Wholesale inventories rose 0.1% mom to USD 934.1B. Retail inventories rose 0.5% mom to USD 742.2B.
US GDP grew 2.9% annualized in Q4, slightly above expectation of 2.8%. The increase in real GDP reflected increases in private inventory investment, consumer spending, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment and exports. Imports, which are a subtraction in the calculation of GDP, decreased.
For 2022, GDP grew 2.1%, compared with an increase of 5.9% in 2021. The increase in real GDP in 2022 primarily reflected increases in consumer spending, exports, private inventory investment, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment and federal government spending. Imports increased.
IMF said in a statement that “accommodative monetary policy stance remains appropriate” for BoJ. But it warned of the “exceptionally high uncertainty around baseline inflation projections with risks tilted to the upside”.
Upside risks include “delayed effects of exchange rate depreciation, border reopening, second round effects of imported inflation, fiscal support, and higher-than-expected wage growth.” Downside risks are mainly from slowdown in the global economy.
“Given the two-sided risks to inflation, more flexibility in long-term yields would help to avoid abrupt changes later… providing clear guidance on the pre-conditions for a gradual policy rate change in the future would help anchor market expectations and strengthen the credibility of the BoJ’s commitment”.
“BoJ could consider the following options to allow further flexibility and increases in long-term yields: widening the 10-year target band and/or raising the 10-year target, shortening the yield curve target, or shifting from a JGB yield target to a quantity target of JGB purchases”.
German Economy Minister Robert Habeck told Bundestag that inflation will remain high at the beginning of this year. But, “we have broken the inflation trend.”
According to the government’s annual economic report published yesterday, inflation is projected to be at 6% in 2023, revised down by prior forecast of 7%. The economy is projected to growth 0.2% this year, much better than autumn forecast of -0.4% contraction.
Habeck also noted that in 2024, inflation will be lower than in 2023 and growth will be higher.
Canadian Dollar is trading as the worst performer for the week so far, after BoC raised interest rate by a final 25bps in the current cycle. A pause will follow for the impacts of previous tightening to pass through to the economy.
EUR/CAD’s breach of 1.4639 temporary top suggests that larger up trend from 1.2867 is resuming. Further rally is now expected as long as 1.4498 support holds. Next target is 61.8% projection of 1.3270 to 1.4591 from 1.4232 at 1.5048. Break of 1.4498 will bring more consolidations before staging another rally.
In the Summary of Opinions at BoJ’s January 17-18 monetary policy meeting, it’s repeated noted that it’s important to continue with current monetary easing as well as yield curve control.
The modification of YCC at the December meeting was “aimed solely at making monetary easing more sustainable”. It is “necessary” to “take some time” to examine the effects of the change in YCC.
One member noted the “upward pressure” on long-term interest rates and the distortions on the yield curve. And, BoJ “should curb interest rate rises across the entire yield curve through measures”.
Regarding prices, CPI is expected to fall below 2% from fiscal 2023, and there is “still a long way to go to achieve the price stability target”.
But opinions were more upbeat as one noted that “momentum for wage hikes has grown, and it is possible that a certain degree of base pay increases will be realized”. But it still takes time for wages to see a “sustained increase”.
Firms’ stance has “shifted toward actively raising their selling prices” as seen in the outlook for output prices. Pace of rises in prices of both goods and services is “accelerating”. It’s possible that the significant price shocks since last week will “change the norm for prices”.
BoC raises overnight rate by 25bps to 4.50% as widely expected. The Bank Rate and deposit rate are also lifted to 4.75% and 4.50% respectively.
In the statement, BoC said, “If economic developments evolve broadly in line with the MPR outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”
That is, a pause is going to follow. But, BoC is still “prepared to increase the policy rate further if needed to return inflation to the 2% target.”
BoC also noted, that recent economic growth has been “stronger than expected” with the economy remains in “excess demand” Labor markets are “still tight”. But there is “growing evidence that restrictive monetary is slowing activity”. It expects the effects of tightening to “continue to work through the economy” while weaker foreign demand will weigh on exports.
BoC projects growth of about 1% in 2023 and 2% in 2024. Inflation is projected to fall to around 3% in the middle of 2023, and then 2% in 2024.
ECB Governing Council member Gabriel Makhlouf said, “We need to continue to increase rates at our meeting next week – by taking a similar step to our December decisions – and also at our March meeting, although our future policy decisions need to continue to be data-dependent given the prevailing uncertainty.”
“Raising the policy rate also signals our commitment to price stability,” Makhlouf added. “It sends a clear message that we will not allow inflation to stay above 2 per cent and helps to contain inflation expectations, guarding against the emergence of self-reinforcing inflation dynamics and tackling the risk of a persistent increase in inflation expectations.”
Separately, Bundesbank President Joachim Nagel said, “For February and March, we have announced that we will raise interest rates sharply again. Then we will look at where the inflation rate is in the spring and what our experts’ forecast looks like. I wouldn’t be surprised if we have to keep raising rates even after the two announced steps.”
Germany Ifo Business Climate rose slightly from 88.6 to 90.2 in January, below expectation of 90.5. Current Assessment ticked down from 94.4 to 94.1, below expectation of 95.0. Expectations index, on the other hand, improved from 83.2 to 86.4, above expectation of 85.0.
By sector, manufacturing rose from -5.7 to -0.7. Services rose from -1.2 to 0.2. Trade rose from -20.0 to -15.4. Construction also rose slightly from -21.9 to -21.6.
Ifo said: “Sentiment in the German economy has brightened. The ifo Business Climate Index rose to 90.2 points in January, up from 88.6 points in December. This is due to considerably less pessimistic expectations. Companies were, however, somewhat less satisfied with their current situation. The German economy is starting the new year with more confidence.”
Japan Cabinet Office lowers its monthly economic assessment for the first in 11 months. It said, “the economy is recovering moderately but some weakness is seen recently.”
Also assessment on exports was downgraded for the first time since 2011. Both exports and imports are “weakening recently” compared with its previous view of “almost flat” last month.
“China’s coronavirus rebound could affect Japan’s exports and production and such a possibility has become clearer than last month,” said an official at the Cabinet Office.
Assessment on domestic demand and private consumption was maintained as “picking up moderately”.
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Eurozone economic sentiment rose to 99.9 in Jan, EU up to 98.0
Eurozone Economic Sentiment Indicator rose from 97.1 to 99.9 in January. Employment Expectation Indicator rose from 107.4 to 110.1. Economic Uncertainty Indicator dropped from 27.5 to 26.2. Industry confidence rose from -0.6 to 1.3. Services confidence rose from 7.7 to 10.7. Consumer confidence rose from -22.1 to -20.9. Retail trade confidence rose from -2.7 to -0.8. Construction confidence dropped from 3.6 to 1.3.
EU Economic Sentiment Indicator rose from 95.7 to 98.0. Employment Expectation Indicator rose from 106.2 to 108.5 Economic Uncertainty Indicator dropped from 27.0 to 25.9. Amongst the largest EU economies, the ESI increased markedly in France (+4.4), Spain (+2.7), Germany (+2.5), Italy (+1.7) and, to a lesser extent, the Netherlands (+0.5), while it was unchanged in Poland (±0.0).
Full release here.