- EU industrial output should post a softer decline in March after February's retreat
- A UK rate hike is off the table ahead of next month’s Brexit vote
- Brexit worries will dominate the BoE decisions and chatter.
- US jobless claims are projected to slide after two weekly increases
A busy day of economic news awaits, including the monthly report on Eurozone industrial output for March. In addition, the Bank of England publishes a monetary announcement and new minutes from its last policy meeting. Meanwhile, today’s weekly numbers on US jobless claims will draw close attention as the market looks for more context in the wake of last week’s disappointing employment report for April.
Eurozone: Industrial Production (0900 GMT) A degree of healing is expected for Europe’s industrial sector in today’s March report. Although output is expected to ease again in the closing month of the first quarter, the crowd’s looking for a kinder, gentler retreat.
The worrisome US trend in initial jobless claims is likely to ease in today's release, giving optimists an excuse to view the soft NFP figure as a temporary setback. Photo: iStock
Econoday.com’s consensus forecast sees output dipping by just 0.1% in March—a substantially lighter decline vs. the February’s 0.8% tumble. But the recent slowdown will still take a toll on the year-over-year comparison. Production is projected to be flat in March vs. the year-earlier level, a sharp reversal from annual gains in January and February.
A less-threatening profile generally for today's figures is a reasonable guesstimate based on the previously published data for the main economies in March. Three of the big four Eurozone nations posted firmer data, albeit via a mix of smaller monthly declines (France and Germany) and a flat performance (Italy). Only Spain dispatched a genuine rebound with a solid increase in production for March, according to Eurostat data. Nonetheless, the collective picture is one of improvement, if only in relative terms.
Meantime, sentiment in the manufacturing sector suggests that growth will perk up in the second quarter. Markit’s purchasing managers’ index for the Eurozone ticked up in April to 51.7. That’s still soft relative to last year’s readings, but the fact that the PMI is inching higher—and holding above the neutral 50 mark—implies that manufacturing output will continue to print in the positive column.
“The [PMI] survey is signalling an anaemic annual rate of growth of manufacturing production of just less than 1%, which is half the pace seen in the months leading up to the recent slowdown,” Markit’s chief economist said last week.
That’s a clue for expecting that second-quarter growth for the Eurozone will decelerate vs. Q1’s relatively strong 0.6% GDP increase (as a quarter-over-quarter rate). But unless we learn otherwise in today’s industrial report, the near-term outlook for growth, albeit softer growth, remains intact.
UK: Bank of England Announcement & Minutes (1100 GMT) With the economic uncertainty over next month’s Brexit vote looming, it was already likely that the Bank of England wouldn’t announce an interest-rate hike today. The mounting evidence that UK growth is slowing surely seals the deal to stay dovish until the referendum on Britain’s role in the European Union is resolved.
GDP for the three months through April dipped to 0.3% vs. the previous three-month period—down slightly from last month’s forecast, the National Institute of Economic and Social Research projected in a report yesterday. “UK economic growth continues to be subdued compared with the rates we saw at the end of last year,” a spokesman for NIESR said. “Some of this slowdown is undoubtedly a result of heightened uncertainty around the impending EU referendum, and so is likely to be temporary should the UK decide to remain in the EU after June 23rd.”
Maybe so, but the ongoing outlook for softer growth will keep the BoE away from squeezing policy. Meantime, Brexit worries will dominate the central bank’s decisions… and chatter. BoE Governor Carney “will make it clear that the Bank is well prepared for the possibility of Brexit, possibly outlining contingency plans to help calm the markets, but the Bank’s baseline for its forecasts is that the UK will vote to remain in the EU,” advised Roubini Global Economics in a note to clients from earlier this week.
US: Initial Jobless Claims (1230 GMT) Today’s update offers deeper perspective on interpreting last week’s disappointing rise in US payrolls for April. The initial reaction: the 160,000 increase in nonfarm employment—well below the 215,000 advance in the previous month—is a sign of trouble for the labour market. But the upward bias in this week’s monthly release for job gains in March inspired some analysts to argue that the trend still looks encouraging.
“The data generally remain upbeat and it does not look like there has been any material weakening in the health of the labour market lately,” a JPMorgan (NYSE:JPM) economist told Reuters on Tuesday.
Today’s weekly release on new filings for unemployment benefits will provide fresh guidance on evaluating the wisdom of remaining optimistic. From the vantage of the forecasters, the news is on track for some improvement. After running sharply higher in the last two updates, new claims reached a five-week high in the final week of April and posted a modest year-over-year increase for the first time in a month.
But the worrisome trend is set to ease, according to Econoday.com’s consensus forecast. Claims are projected to fall by 7,000 to 267,000 (seasonally adjusted). In that case, the optimists will have another excuse to view last week’s surprisingly soft payrolls report for April as nothing more than a temporary setback.
Disclosure: Originally published at Saxo Bank TradingFloor.com