I took some time out from this podcast for a couple of reasons: for a week there, it seemed like the economic data wasn't really telling me anything new that I hadn't already talked about.  But when China releases its 3Q GDP and a bunch of data for September, it would be surprising if there's nothing there to be seen.

And there is.  To cut a long story short, no matter which was you cut and analyse the data, they all tell us the same story - that far from a 'dead-cat bounce' after Covid, China's  recovery continues to make progress, with an underlying sequential acceleration which has dimmed only very slightly over the last three months. What's more, it looks like the recovery is genuinely being driven by a recovery in private, nominal, domestic demand, rather than merely a product of fiscal stimulus. 

The story today is the stark contrast between the sagging spirits in Europe and the recovery of confidence in the US. Doubtless, Europe's renewed slump is related to the renewed efforts to act, somehow, against the coronavirus, but the source of the renewed confidence in the US is difficult to fathom.  

Let's take Europe first. The main exhibit is October's  Zew survey of German financial opinion. This reported expectations for the Eurozone down no less than 21.6pts to 52.3, which was the lowest since May, even though current conditions retreated a relatively mild 4.3pts to 76.6.  Things were just as bad in Germany, where expectations dropped 21.3pts to 56.1, which was also the weakest since May, even though current conditions were down only 6.7pts to minus 59.5, which was the least-bad since March.    Meanwhile, expectations weren't just deteriorating for Europe, this survey found expectations for US and Japan also down just as badly.  Zew cites not just the sharp rise in coronavirus cases in Europe, but also the prospect of the UK leaving the EU without a trade deal, and uncertainties about the US election as depressing factors.  

Meanwhile, it's a completely different story in the US, where two business confidence indicators released today found a genuinely surprising surge in confidence. The September NFIB small business confidence index rose 3.8pts to 104, which basically takes it back to the sort of levels seen before Covid-19 surfaced.  This was not just a sharp recovery, it was broad-based, with 9 of the 10 subindexes improving. In particular, 6m expectations rose 8pts to net +32%, and expected real sales rose 3pts to net 8%. 

And then Oct's IBD/TIPP economic optimism index found something similar, as it rose 10.2pts, or 22.7% mom to 55.2 - which was the best since February.  Expectations jumped 30.4% mom to 54.1, which was the biggest monthly jump since Nov 20078, and assessment of federal policies rose 26.1% mom to 52.6, which was the sharpest monthly rise since the immediate aftermath of Sept 11 attack.  Even assessment of personal finances rose 13.9% to 58.9 - solidly optimistic. 

With all that the US has been through during the last few months, this outbreak of of optimism is extremely surprising. If it was only one survey, I'd cast doubt - but when two find much the same thing, you can assume they're on to something. 

A typical mid-month Monday - very quiet with very little to report. Still, the highlight of the day was probably Sept's orders for Japan's machine tool orders. Although these fell 15% yoy, the monthly movt was actually 2.1SDs above historic seasonal trends. This follows on from monthly gains sharply higher than trend for July, July and August. Right now the 6m deflection against trend is running at 0.9SDs above trend, which is the highest since early 2014.  The problem, of course, is that the base of comparison is so low now, that even this strong run hasn't been enough to rescue the yoy.  The 12m yoy is still running down 35.4% yoy, and this comes after a fall of 32.3% in calendar 2019. 

Still, you've got to take your surprises where you can get them.  And here the surprise is in foreign orders, which were actually up - yes, up - 1.8% yoy in September, which was the first yoy gain for two years, with a monthly movt 1.3SDs above trend. Domestic orders, meanwhile, are still down 34.3% yoy, although the monthly movt was 1.2SDs above trend.  

Machine tool orders are literally the cutting edge of the industrial cycle, and so we can probably say that whilst there's signs of life ex-=Japan, there's really not sign that we're going to break into positive territory domestically in Japan any time soon. 

It is shared wisdom that trade is a motor of global economic growth, so it is puzzling that no attention is paid to the continuingly proliferating thicket of non-tariff barriers (NTBs) planted to impede and curtail this growth.  The World Trade Organization maintains a database of who is raising NTBs, but as far as I can tell, it is ignored in mainstream economic coverage.  But I have the freedom to watch and comment, so I check it on the first Friday of every month. 

In September, the four major economic powers (US, China, EU, Japan) added a further 66 NTBs designed to impede and slow trade.  Over the year to September, they added a further 380, taking the total to 13,704  - up 4.9%yoy. 

• US added 11 in September, taking the total to 6,234, up 4.0% yoy 


• China added 27 in September, taking its total to 2959, up 4.7% yoy 


• EU added 20 in September, taking its total to 2544, up 5.6% yoy 


• Japan added 8 in September, taking its total to 1967, up 7.5% yoy

The rise is relentless, with the obstacles in place up 86% since 3Q 2010. Erect enough obstacles and eventually trade will be impeded. That point has probably already been reached: on a 12m basis the imports of these four giant economies peaked in 2018, well before the world had heard of coronavirus.  The pandemic accelerated the decline, it did not initiate it.  By August, 12m imports from these countries was down 7.9% yoy, and was down 9.5% from the 2018 peak. 

Although the world's trade warriors are plainly winning their war against trade, there is no sign that their efforts will flag or abate. 

Today we had further evidence of the improvement in Japanese consumer confidence - something still new, and still genuinely surprising. 

After last week's modest recovery in the consumer confidence index, we got more dramatic confirmation with the release of September's pavement-level Economy Watchers indexes. The assessment of current conditions improved sharply, up 5.4pts to 49.3, which was the highest since April 2018, The outlook rose 5.9pts to 48.3, which was the highest since February 2019. The biggest improvements in outlook came in employment, which rose 7.2pts to 48.9, and the household outlook, which was up 6pts to 48.5.  The outlook for business also rose 5pts to 47.4, with  manufacturing up 5.2pts and non-manufacturing up 4.4pts. 

This recovery in confidence coincides with the very sharp recovery in trade numbers in September, which I talked about yesterday. That included exports down only 1.9% yoy in yen terms, or 0.3% in dollar terms, with a monthly movt 3.5SDs above historic seasonal trends.  

Still, overall, the improvement in Japan's outlook has rather crept up on me: with the exception of the rise in money and lending numbers, it's been hard to find any consistent evidence of recovery in either industrial data, or domestic demand indicators.  But, when I look at my Shocks & Surprises index for Japan, I find that actually, when you strip out the volatility, you discover that Japan's 12m index has made it into positive territory during the last few weeks for the first time since April 2018.   

I've previously talked and written about how the visible trends in NE Asia's exports and G3 Imports have exited the pandemic in far stronger condition than expected. In August, for example, NE Asia's exports were up 2.9% yoy, which may not sound great, but achieving a positive yoy has been rare over the last 18 months. 

We've now got enough data for September to be confident that this strength is going to be maintained. Today we got Japan's 20-day data for September, which showed exports down 1.9% yoy in yen terms,  but with a monthly movt up 3.5SDs above historic seasonal trends.  In dollar terms, these exports were down only 0.3% yoy, compared with a fall of 15.1% in August. 

Earlier, we'd learned that S Korea's Sept exports rose 7.7% yoy in dollar terms, with the monthly movt 2SDs above historic seasonal trends, with exports to US up 23.2% yoy.

We also had data from Taiwan. Taiwan has been the conspicuous front-runner in NE Asia's trade recovery, and in September its exports rose 9.4% yoy - and whilst the monthly movt was only on-trend, this was still the highest yoy growth since early 2018 (excepting CNY affected months).

Japan, S Korea and Taiwan account for a third of NE Asia's exports, so unless China springs a really nasty shock on us, September is going to be another month of unusually strong export growth for NE Asia.  And there's no reason to believe China's exports are going down - its September PMIs, included a 1.7pts rise in the export order subindex to 50.8 , the first 50+ result since Dec 2019, and the strongest since May 2018. 

Main message of the day: it's quiet out there.  After the collapse, and after the rebound comes this period, when things look surprisingly normal.

All over the world, too. Australia's exports fell 21.9% yoy and were 1SD below trend, but its core industrial commodities businesses did OK: iron ore up 4.5% yoy, copper up 37.3%.  And although exports to China fell 14.1% yoy, that's considerably better than the average. 

In Europe, Germany's August factory orders were also near-normal, up 4.5% mom and down only 2.2% yoy, with domestic orders up 1.7%, export orders up 6.5%. 

And in the US, we had normality in the JOLTS job openings: not only were the 6.5mn openings almost unchanged from July, so also it was for hire, separations and quits.   Meanwhile, August's 2.2% mom rise in exports was also . . . well, normal. 

As usual, the week started quietly, with data only adding detail and nuance to trends we've already identified. 

In Taiwan, Sept's manufacturing PMI rose 3pts to 55.2, the highest since March 2018, bolstered by very strong growth in orders, exports, output, payrolls, backlogs. But as we've seen elsewhere, demand surprises tend to run headlong into supply shocks, and this is happening in Taiwan too, with delivery time continuing to lengthen. 

In Europe, the UK is/was the only economy showing a service-sector recovery, with Sept's PMI at 56.1, whilst Eurozone was still contracting, at 48.

In the US, Friday's vehicles data had autos/light trucks up 7.6% mom to a level only 3.6% below the 2019 average - ie, recovery. But heavy truck sales, which I think is a great indicator, were down 5.3% mom and down 26.3% yoy. The slump started in Oct/Nov last year, and hit collapse during Covid, and the recovery we've seen since then only takes sales back to around the lows seen in 2016.  This signal remains basically negative.

Today I looked at the US labour market data for September, and the surprising rise of Japan's consumer confidence index. 

The 661k rise in September US non-farm payrolls was only slightly disappointing, and offset by a 0.5pps fall in the unemployment rate to 7.9%. But the details are not nice: in particular, the 0.3pp decline in the labour participation rate, to 61.4% is the very stuff of 'economic scarring' people have warned about.  It also explains the fall in the unemployment rate: the number unemployed dropped 970k, but mainly because 879k dropped out of the workforce.  Yes, this is only one month so far, but it is distinctly bad news. 

Genuinely surprising news, from Japan, though, where Sept's consumer confidence index rose 3.4pts to 32.7, which was the highest since pre-covid February.  Actually, though, this slightly underplays the surprise: what was driving this was a rise in expected income up 3.7pts to 35.1, and a willingness to buy durables, which rose 2.9pts to 34.9.  What's unexpected about them is that it brings both indexes to within hailing distance of the 2019 average. For income, the result is 35.1, the 2019 average of 37; for wilingness to buy we had 34.9, vs a 2019 average of 35.9. 

Loads of data landing from around the world today, but in the end telling us little new.  In particular, Japan's 3Q Tankan was a damp squib. 

In the US, the ISM manufacturing index reported a surge in prices paid, with the index rising to the highest since October 2018. This is the supply shock of the pandemic kicking in again as demand beings to recover. That shows up in the comments accompanying the survey: eg, a computer/electronics guy saying 'still struggling with long lead times for components coming from China';  Or the transport equipt sector comment: 'Business is booming and the supply chain has been caught off guard. . . . the resin industry, along with plastics, is driving cost increases and scarce availability'.  

And then there's Markit's manufacturing PMIs: The average for those released today and yesterday rose 0.6pts to 52.1, suggesting a steady mild improvement in conditions, though the standard deviation between countries rose a little to 3.1pts from 2.2pts in August.  Within than, Europe's PMIs averaged 53.1, up 1.1pt from August, with the SD unchanged at 2.3pts.   Asia, however, inched up only 0.3pts to 50.9 - barely back in perceptible growth, although here there is a wide variation, witha SD of 4pts (up from 2.2 in August).