Tuesday's macro dispatches focus on several key reports, including an update on inflation in Britain; the mood in Germany’s financial community via the ZEW economic sentiment data; and the monthly report on US retail sales. Keep an eye too on today’s releases for Eurozone industrial production (09:00 GMT) and the US NFIB business optimism Index (11:30 GMT).
UK Consumer Price Index (08:30 GMT): Today’s update on inflation will be of keen interest to the markets in the wake of the previous release that showed consumer prices rising at their fastest annual rate in more than a year. The 2.9 percent year-over-year increase is bumping up against the sensitive three percent mark. When and if that annual pace is reached, the Bank of England (BoE) will be required to explain to the Treasury, publicly, how it will respond.
Inflation has been running well over the BoE’s two percent medium-term target for several years, although it’s been relatively low compared with 2010 and 2011. The question is whether inflation is accelerating? If so, what does that imply for monetary policy and the economy? With Britain’s economy showing renewed strength lately, it’s not surprising that inflation has been trending higher. In some respects, that’s the goal: higher nominal prices generally in connection with greater economic activity. But at what point does higher inflation become burdensome as opposed to a productive sign of recovery?
In a report issued last week, the BoE projected “that CPI inflation 18 to 24 months ahead will be 0.5 percentage points or more above the two percent target” (pdf). The central bank also explained that it would continue to favour monetary stimulus while the unemployment rate was over seven percent (it’s currently at 7.8 percent). The BoE doesn’t yet find itself between a rock and a hard place, but the risk may be inching higher.
Germany ZEW Economic Sentiment (09:00 GMT): Economic news for Europe’s growth engine is looking up again. Last week’s better-than-expected gains on new factory orders and industrial production in June follows encouraging numbers in the July purchasing managers indices for manufacturing and services. It’s too early to say if this warrants a major upgrade of the macro outlook for Germany, although today’s August update of the widely followed ZEW Indicator of Economic Sentiment may tell us if the trend is still our friend.
Recent ZEW numbers haven’t been particularly encouraging. The expectations component of the survey has been moving sideways for several months. A month later, we have recent news that implies a stronger third quarter performance for Germany than previously assumed. It’ll be interesting to see if any of this registers in today’s ZEW release.
Meantime, the unexpected decline in June retail sales suggests that it’s premature to say that the economy has shifted into a higher gear for growth. Then again, some analysts blame weak consumer spending of late on the temporary factor of weather. By that reasoning, the turbulence has passed and so we may see a rise in the mood of Germany’s financial sector in today’s report.
US Retail Sales (12:30 GMT): Consumer spending appears to be accelerating, or so the year-over-year change in retail sales suggests. The 5.7 percent increase in June versus the year-earlier level is the fastest rate since March 2012. The monthly numbers look less bubbly, but there have been gains in each of the past three months and economists think today’s report will make that four in a row for the headline number.
Retail sales are expected to rise 0.3 percent in July versus the previous month, according to the consensus forecast. That’s a touch higher than my average econometric forecast, although it’s safe to say that the market is looking for a modest rise today. Sentiment among consumers is certainly trending higher these days. Last week’s update of the Bloomberg Consumer Comfort Index for the week through August 2 rose to its highest level in nearly six years. “It shouldn’t be surprising that people are feeling more upbeat and confident, particularly with respect to their financial conditions,” says Bloomberg economist Richard Yamarone.
Overall, the economy continues to expand at a moderate pace, based on a broad set of economic indicators. Given this backdrop, assuming that retail spending will continue to rise is still a reasonable forecast.
UK Consumer Price Index (08:30 GMT): Today’s update on inflation will be of keen interest to the markets in the wake of the previous release that showed consumer prices rising at their fastest annual rate in more than a year. The 2.9 percent year-over-year increase is bumping up against the sensitive three percent mark. When and if that annual pace is reached, the Bank of England (BoE) will be required to explain to the Treasury, publicly, how it will respond.
Inflation has been running well over the BoE’s two percent medium-term target for several years, although it’s been relatively low compared with 2010 and 2011. The question is whether inflation is accelerating? If so, what does that imply for monetary policy and the economy? With Britain’s economy showing renewed strength lately, it’s not surprising that inflation has been trending higher. In some respects, that’s the goal: higher nominal prices generally in connection with greater economic activity. But at what point does higher inflation become burdensome as opposed to a productive sign of recovery?
In a report issued last week, the BoE projected “that CPI inflation 18 to 24 months ahead will be 0.5 percentage points or more above the two percent target” (pdf). The central bank also explained that it would continue to favour monetary stimulus while the unemployment rate was over seven percent (it’s currently at 7.8 percent). The BoE doesn’t yet find itself between a rock and a hard place, but the risk may be inching higher.
Germany ZEW Economic Sentiment (09:00 GMT): Economic news for Europe’s growth engine is looking up again. Last week’s better-than-expected gains on new factory orders and industrial production in June follows encouraging numbers in the July purchasing managers indices for manufacturing and services. It’s too early to say if this warrants a major upgrade of the macro outlook for Germany, although today’s August update of the widely followed ZEW Indicator of Economic Sentiment may tell us if the trend is still our friend.
Recent ZEW numbers haven’t been particularly encouraging. The expectations component of the survey has been moving sideways for several months. A month later, we have recent news that implies a stronger third quarter performance for Germany than previously assumed. It’ll be interesting to see if any of this registers in today’s ZEW release.
Meantime, the unexpected decline in June retail sales suggests that it’s premature to say that the economy has shifted into a higher gear for growth. Then again, some analysts blame weak consumer spending of late on the temporary factor of weather. By that reasoning, the turbulence has passed and so we may see a rise in the mood of Germany’s financial sector in today’s report.
US Retail Sales (12:30 GMT): Consumer spending appears to be accelerating, or so the year-over-year change in retail sales suggests. The 5.7 percent increase in June versus the year-earlier level is the fastest rate since March 2012. The monthly numbers look less bubbly, but there have been gains in each of the past three months and economists think today’s report will make that four in a row for the headline number.
Retail sales are expected to rise 0.3 percent in July versus the previous month, according to the consensus forecast. That’s a touch higher than my average econometric forecast, although it’s safe to say that the market is looking for a modest rise today. Sentiment among consumers is certainly trending higher these days. Last week’s update of the Bloomberg Consumer Comfort Index for the week through August 2 rose to its highest level in nearly six years. “It shouldn’t be surprising that people are feeling more upbeat and confident, particularly with respect to their financial conditions,” says Bloomberg economist Richard Yamarone.
Overall, the economy continues to expand at a moderate pace, based on a broad set of economic indicators. Given this backdrop, assuming that retail spending will continue to rise is still a reasonable forecast.