3 Numbers To Watch: German Ifo, Uk Gdp, Us New Home Sales

Business sentiment in Germany, the first estimate of fourth-quarter GDP data for Britain and new home sales in the US will frame the trading environment for the day ahead.

Germany Ifo survey (09:00 GMT) Today's update of Ifo's widely followed survey of business sentiment in Germany is expected to corroborate yesterday's moderately upbeat news for the country's purchasing managers indices (PMI). The initial January estimates for Markit's manufacturing and services PMIs posted gains over the December numbers. "Germany starts 2013 with a resurgence in private sector output," the accompanying press release said. The market is expecting Ifo's trio of business survey indices for January to dispatch similarly encouraging clues for thinking that Europe's primary economy is making some headway in breaking free of its recent bout of decelerating growth.

Even so, cautious optimism is still the recommended outlook. As Markit noted, the services sector remains the main engine driving Germany's latest batch of good news. Manufacturing output is expanding again, but the overall sector's forward momentum remains weak, as indicated by the flash reading of 48.8 for Germany's manufacturing PMI. That is an 11-month high, but it is still below the neutral 50 mark.

Today's Ifo data, however, may juice the crowd's appetite for assuming that Germany is poised for a virtuous cycle of improving numbers in the first quarter. In turn, an encouraging report will inspire the notion that the worst of Europe's macro troubles have passed. That is not the same as saying that the macro skies have uniformly cleared—they haven't. Far from it, as Spain's sky-high unemployment rate - 26 percent - reminds us, to cite just one number. But the big picture across the continent is either improving, treading water, or digging a deeper hole. For now, there's a marginal case for arguing that Germany is again leading the Eurozone toward a distant light in an otherwise dark tunnel

UK GDP (09:30 GMT) News from Britain today will reveal if the long-simmering worries about the economy for Q4 claims any basis in fact. To be precise, a broadly defined quarterly fact, as reflected in the initial estimate of UK GDP for the last three months of 2012, which is set for release this morning. The consensus view is that we will see a dip, with GDP contracting 0.1 percent in Q4 versus the previous quarter, based on real, seasonally adjusted data.

Red ink will undoubtedly trigger cries that the UK has succumbed to a triple-dip recession. But pay no attention to qualitative labels. Instead, focus on the numbers, and any related clues as they relate to thinking about this year's first quarter. For instance, if GDP does post a dip in Q4, I'll be looking for the source (or sources?) of the weakness in today's report. Is it primarily due to a pullback by consumers? Or is there weakness in the business sector too?

Perhaps the main question relates to inflation. The Bank of England recently has been reluctant to extend monetary stimulus because inflation has remained above its target level. Will today's GDP report provide cover for doing more on the monetary front? Probably not, but dissecting the deflator data of the day promises to be a highlight, for good or ill.

US New Home Sales (15:00 GMT) The real estate recovery in 2012 is genuine for the US, although the latest data point—existing home sales for December, released earlier this week—look a bit wobbly. But don't read too much into that mild setback. Existing sales dipped a bit due to a combination of factors that have been absent in recent years: rising demand and falling supply. As troubles go for the property market, this one's a refreshing change of pace compared with the last several years. “We saw housing gain momentum throughout last year, and clearly a little dip [for existing sales] doesn’t take that away,” one economist told Bloomberg.3

Meanwhile, today's report on new home sales for December are expected to show a return to the bullish aura that's been the trend for most real estate numbers in recent months. The consensus view sees new sales rising to 388,000 (seasonally adjusted, annualized data), up from November's reported 377,000. The crowd's estimate for December is in line with my econometric modeling. But even if there is a slight decline, the market will likely shrug it off as noise. Months of upbeat housing numbers—including a strong rise for housing starts last month—trump any one report. And with a broad set of economic data beyond property still leaning toward modest growth, it would take an unusually large downside surprise to raise questions about the integrity of the real estate market's revival.