Inflation Commentary, France CPI (Dec 2022), More Outlooks
Economic news and commentary for January 4, 2023
France CPI
France's CPI fell -0.1% MoM to 5.9% YoY in December, down from 6.2% YoY in November. The slowdown in annual inflation at the end of the year was caused by a weakening in energy prices. Outside of that category, inflationary pressures were mixed and muted. Food prices were basically flat in December with a decline in fresh food prices offsetting an increase in other food product prices. Similarly, manufactured product prices up 4.6% YoY, a 0.2 ppt acceleration from last month, countered the slight softening in services prices, up 2.9% YoY, a -0.1 ppt deceleration from last month. Yesterday, we saw German inflation make a significant retreat thanks to cooling in goods inflation. Today, we see some progress in France in the volatile categories while core components were mixed. So far, the ECB will like the inflation numbers in the final month of 2022 as they could give the central bank more options in future policy decisions.
S&P Global Services PMIs
• India: 58.5 (Nov 56.4)
• Spain: 51.6 (Nov 51.2)
• Italy: 49.9 (Nov 49.5)
• France: 49.5 (Nov 49.3)
• Germany: 49.2 (Nov 46.1)
The first batch of services PMIs came out today and signaled some greater weakness in the global services sector. Three out of four European reports showed a contraction, but all of those were in the 49-50 range suggesting just a slight decline. On the other hand, Spain saw some slight growth in services activity thanks to its strong tourism sector. As a region, the Eurozone Services PMI reached a 4-month high and was just 0.2 ppt from breaking even at the end of 2022. The gradual cooling of inflation will continue to be a boon for demand, and 2023 should see the services sector being a boon for growth soon enough. However, it probably won’t be enough to offset weakness in the manufacturing sector. The sole Asian services PMI released today, India, came out red hot. The reading jumped another 2 pts to jump above 58 and reach the highest since mid-2022. Combined with the strong manufacturing sector, the services sector will help push the Indian economy to another booming year of growth in 2023.
Still to come…
10:00 am (EST) - US ISM Manufacturing PMI
10:00 am - US JOLTS
2:00 pm - US Fed Minutes
Morning Reading List
Inflation
Inflation Monitor for January 3 (BMO) - Inflation will likely remain the dominant economic story in 2023. Canada’s headline inflation rate slowed in November, but key core gauges mostly trended higher, suggesting underlying price pressures will remain persistent.
Sustained easing in global price and supply pressures during December (S&P Global) - The Global PMI™ Commodity Price & Supply Indicators by S&P Global indicated a sustained softening in price and supply pressures across the global manufacturing sector in the final month of 2022. Falling for the third month in a row, the Global Price Pressures Index dropped to its lowest level in two-and-a-half years during December (0.3). Only eight of the 26 monitored commodities registered an increase in the number of higher price reports. Notably, the steepest increases were seen for gas and electricity.
Global price pressures cool further as end of 2022 sees manufacturers cut capacity: 10 key charts (S&P Global) - In a marked contrast to earlier in the year, when manufacturing conditions were characterised by firms struggling to source sufficient quantities of raw materials and labour, the end of 2022 saw increasing evidence of producers cutting back sharply on input purchases and reducing headcounts amid growing signs of slumping demand and excess capacity.
German inflation drops to 8.6% in December (ING) - Lower oil and gasoline prices and the first phase of the government's gas price cap have pushed down headline inflation in December. Still, at current levels, inflation remains a major concern in 2023.
Turkey: Annual CPI ended 2022 below 65% (BBVA) - Consumer prices increased by 1.2% in December and annual consumer inflation fell sharply on base effects to 64.3% from the previous 84.4%, leading to a full year average of 72.3%. We expect annual CPI to come down to 50-55% in 1Q23 and decline further to 40-45% just before the elections and year-end inflation to be 42%.
US
Construction Spending Bounces Back in November: Manufacturing Investment Supports Outlays, but Residential Spending Declines (Wells Fargo) - In a surprise to the upside, total construction spending increased 0.2% in November. The gain was driven mostly by an 1.7% rise in private nonresidential expenditures. Residential construction spending declined for the sixth consecutive month, with declines on both the public (-0.1%) and private (-0.5%) sides.
Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal (New York Fed) - We quantify the total stock of balances eligible for the 2022 federal student loan forgiveness policy and explore which groups benefit most. Roughly $441 billion in balances are eligible for forgiveness, which would leave almost 40 percent of federal borrowers with no remaining balance.
Consumer Confidence Bounced Back in December (NAHB) - Consumer confidence rose to an eight-month high in December as declining gas prices and easing inflation contributed to more optimistic views of economy. However, spending plans were mixed. Vacation intentions improved, while the intention to buy homes and big-ticket appliances cooled further due to elevated mortgage rates. This shift in consumer preference from goods to services is likely to continue in 2023.
Research US: Good news is bad news for the Fed (Danske Bank) - Leading indicators point towards a turnaround in macro momentum amid easing financial conditions, but the Fed is still far away from price stability. The less negative growth outlook combined with a recovering China challenges the Fed’s goal of suppressing demand.
Europe
German import prices fell -4.5% MoM to 14.5% YoY in Nov, export prices fell -0.5% MoM to 11.6% YoY. Energy import prices were down -16.1% MoM. Capital goods exports were up 7.5% YoY.
The household confidence index in France was 82 in December, down from 83 in November. The next 12 months financial situation index edged down -1 pt to -22, and the major purchase intentions index fell -2 pts to -40.
Asia
ASEAN manufacturing outlook for 2023 softens as demand remains lacklustre (S&P Global) - ASEAN manufacturers continued to experience a slowdown at the end of 2022, with December's PMI data indicating the softest output expansion in 15 months. The deterioration in growth conditions was underpinned by a quicker decline in new orders as the slowing of global demand continued to act as a headwind upon factories in the ASEAN region and more widely across Asia.
China Outlook: Earlier reopening to drive faster rebound (Danske Bank) - The Chinese reopening happened faster than we expected, leading us to revise the growth profile for China. We now expect GDP to take a bigger hit in Q4 and Q1 but that the recovery starts already in February/March, 3-4 months earlier than we previously expected. The weak start of the year pulls down the average of 2023 taking our annual growth forecast down to 4.6% (previously 4.9%) whereas a stronger starting point in 2024 pushes up the growth forecast to 6.0% (previously 5.3%).
Outlook
2023: A Year of Transition to What? (BNP Paribas) - 2022 was a year of profound transformation, of shifting geopolitical and economic paradigms. Looking ahead, 2023 should see a change of direction in key economic variables. Headline inflation should decline significantly, central bank rates should reach their cyclical peak and the US and the euro area should spend part of the year in recession. 2023 can be considered as a year of transition, paving the way for more disinflation, gradual rate cuts and a soft recovery in 2024.
Three investment lessons for 2023 (BlackRock) - A historic 2022 taught us to widen the lens of possible scenarios, factor in geopolitical risk and use a new playbook for more frequent portfolio changes. Global stocks ended the year down 18%, while bonds fell 16%. This marked the biggest market storm in decades amid inflation and hawkish central banks.
2023 Market Outlook: LPL Research Takes a Look at the Year Ahead (LPL Financial) - 2022 was a dizzying year as markets and the global economy continued to find itself out of balance due to the still present aftereffects of the COVID-19 pandemic and the policy response to it. If 2022 was about recognizing imbalances that had built in the economy and starting to address them, we believe 2023 will be about setting ourselves up for what comes next as the economy and markets find their way back to steadier ground.
FX
USD wakes up with a bang as US markets come back online (Saxo Bank) - The action on the first real trading day of the year for USD traders suggests that at least some of the USD weakness at the end of last year may have been down to end-of-year flows. Weak regional German December CPI prints ahead of the national data today also helped the euro weaken, with EURJPY plunging to new multi-month lows as the yen enjoys lower yields, although JPY crosses have bounced from intraday lows, particularly USDJPY.
Green
GDP and Carbon, A United Couple (BNP Paribas) - The link between gross domestic product (GDP) and carbon dioxide (CO2) emissions therefore remains strong, although it may have experienced highs and lows over time: an inseparable bond during the post-war boom of thirty years, distended after the two oil crises of 1973 and 1979, and then very strong again in the 2000s, when it came to fuelling the economic take-off of the two Asian giants, India and China
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