German CPI Growth Accelerates as Inflation Outlook Gets Murkier
Economic news and commentary for February 9, 2023
Germany CPI
Germany's CPI grew 1.0% MoM and 8.7% YoY in January, up from 8.6% YoY in December. The preliminary figure came with no details. Although there is no extra color to the report, we can tell that inflation has not been conquered yet in Germany and, for that matter, in the greater euro area. It’s worth noting that the harmonised index of consumer prices (HICP) inflation rate did slow a bit in January, up 0.5% MoM and 9.2% YoY which is down from 9.6% YoY in December. As is noted by Destatis, this measure is less impacted by housing so deflation in other goods and services has more of an impact. This could suggest that there was some disinflation in those areas that was slightly offset by a slower rise in housing costs. In general, we’ll probably see some noise in Germany’s inflation data to start the year as the German statistical office has also worked to rebase the data from the original base year of 2015 to the new base year of 2020. The message is clear: it is unclear that the fight against inflation has been won. This can only fuel ECB hawkishness and will likely prompt the markets to correct their preconception that the ECB will be more dovish than it has laid out.
Still to come…
10:30 am (EST) - US EIA Natural Gas Report
4:30 pm - US Fed Balance Sheet
6:50 pm - Japan PPI
8:30 pm - China CPI & PPI
Morning Reading List
Other Data Releases Today
The German truck toll mileage index grew 1.0% MoM in January but was still down -4.5% YoY. This partly offsets the large decline in December of -4.9% MoM but still suggests that activity is sluggish.
Australian SME business conditions worsened in Q4 2022 with the index down -3 pts to 11. The business confidence index fell -9 pts to -4 as the sales margin index dropped another -5 pts to -13.
Jobless claims grew 13,000 to 196,000 last week. The insured unemployment rate was up 0.1 ppts to 1.2%. Continued claims grew 38,000 to 1.69 million.
Germany Inflation
German inflation increases and drops at the same time (ING) - The national inflation measure increased in January, while the European measure dropped. This shows that inflation numbers will be surrounded by lots of noise this year as government measures and statistical changes continue to affect inflation numbers. Not an easy task for the European Central Bank.
Federal Reserve
Fed Chair Powell discussion at the Economic Club of Washington, D.C. (EY Parthenon) - Fed Chair Powell decided not to push back against the notable easing of financial conditions after the FOMC press conference, especially as the very strong January jobs report had already reframed market expectations. However, he did push back against the unconditional easing of financial conditions. In other words, the Fed Chair is willing to tolerate an easing of financial conditions if the economic data aligns with a faster decline in inflation and more rapid cooling of the economy.
ECB
Credit Pulse: Rising Interest Rates Catch Up on Bank Lending (BNP Paribas) - The ECB’s policy tightening cycle that began in July 2022 is starting to have a negative effect on bank lending.
Bank of England
Bank of England: Two data points that will make or break a March rate hike (ING) - In their hunt for signs of 'inflation persistence', policymakers will be paying particular attention to the service sector. They will also want to see further changes in wage and price-setting behaviour in the Bank's own survey of businesses. One final 25 basis point rate hike in March still looks likely.
Bank of Canada
BoC Summary of Deliberations (Jan. 25) — Pausing Time (BMO) - The Bank of Canada's inaugural release of the Summary of Governing Council deliberations (a.k.a. minutes), leaned dovish, as it revealed policymakers considered pausing at the January meeting. However, the data showed continued economic resilience with better-than-expected GDP growth and a firmer labour market, which, combined with inflation risks still skewed to the upside, was enough to prompt the 25 bp rate hike, bringing policy rates up to 4.50%.
Bank of Japan
Bank of Japan's potential candidates for the next Governor (Saxo Bank) - The nominee list for the new Bank of Japan governor could be out anytime now. Market volatility has already started to kick in with this week’s media reports of Amamiya being the top choice (which were later ruled out) and PM Kishida’s comments that he does not want to surprise the markets. The consensus is therefore shifting to safe choices, leaving Amamaiya (the most dovish) and Yamaguchi (the most hawkish) candidates out of the race. There is also a possibility of a less popular or external candidate being nominated.
Europe
Wage growth cools as labour market softens further in January, but jobs outlook brightens (S&P Global) - The UK labour market remained soft at the start of 2023, according to survey data compiled by S&P Global, with employment coming under pressure from weak demand for staff from employers. The number of people placed in permanent jobs fell for a fourth month in a row in January as a result.
Monetary policy in Central and Eastern Europe ahead of the curve? (Allianz) - Central banks in the CEE-4 have been the first major ones to halt their interest rate hiking cycles and we expect some of them to also be ahead of the curve when it comes to the pivot.
Sweden: Consumption and production ended the year on a bad trend (Nordea) - Household consumption declined by 0.8% m/m in December and was down 0.6% q/q in Q4, which explains the unexpected downfall in Q4 GDP.
Employment
Recession-resistant recruitment set to continue as business confidence picks up (S&P Global) - A jump in business confidence at the start of 2023 amid signs that downturns across key developed economies may be shorter and less severe than feared means that the 'recession-resistant recruitment' that we have seen in recent months is likely to continue as companies prepare for a recovery in business activity. Indeed, we have now moved from a position of job creation being unprecedented in the face of deteriorating output, to one where it would be unusual for firms to be scaling back employment.
Trade
Charting Globalization’s Turn to Slowbalization After Global Financial Crisis (IMF) - Looking back over a century and a half of data, the main phases of globalization are clearly visible using the trade openness metric—the sum of exports and imports of all economies relative to global gross domestic product. Globalization plateaued in the decade and a half since the global financial crisis. This latest era is often referred to as “slowbalization.”
Manufacturing
Global manufacturing PMI shows modest recovery in January (ABN AMRO) - Global manufacturing PMI rises for first time in a year, but remains in contraction mode. Weakness still concentrated on the demand side. Delivery times almost back to pre-pandemic levels.
Rates
Rising Interest Rates Complicate Banks’ Investment Portfolios (St Louis Fed) - While rising interest rates give banks opportunities to increase earnings by pushing up rates charged on loans, they also could increase the cost of liabilities and decrease the value of investment securities held as assets. Even unrealized losses—paper losses—in investment portfolios can have negative effects on liquidity and present funding challenges, earnings pressures and, in some cases, issues with capital.
Real Estate
Mortgage Activity Increases after Dip in Rates (NAHB) - Purchasing activity has slightly increased as interest rates have fallen for 5 consecutive weeks, but it remains 32.7% lower than one year ago. Refinancing activity continues to remain at lower levels, the refinancing index is down 74.8% from one year ago.
Markets
Growth vs policy rates; earnings and equity valuation (Saxo Bank) - The equity market is still in an uptrend betting up a cyclical upturn in the economy lowering the probability of a recession. Powell's comments yesterday confirmed the growth outlook saying that the US economy might need more rate hikes. Investors showed an extraordinary ability to look through higher policy rate focusing on the growth momentum and easing financial conditions.
Outlook
Top US regional economic predictions for 2023 (S&P Global) - A mild recession is coming in the US. Unemployment and migration trends are shifting. How will these factors play out across different states and regions?
Research
Monetary policy and local industry structure (ECB) - We study how monetary policy affects local market competition in a union of countries experiencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines). This effect is more pronounced when interest rates have been low-for-long, and it is stronger in sectors that are relatively more sensitive to changes in financing conditions.
Rising prices and the impact on the most financially vulnerable: A profile of those in the bottom family income quintile (Statistics Canada) - In the face of rising consumer prices, close to half (44%) of Canadians in 2022 were very concerned about their ability to meet day-to-day expenses. Feeling worried about the impacts of inflation on food, housing, and other expenses was greatest among the lowest-income Canadians, where more than 6 in 10 (63%) in the bottom household income quintile were very concerned. This proportion was over three times higher than those in the top income quintile (19%).
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