Thursday is the busiest day this week for economic releases, including the monthly update on money supply data for the Eurozone. Later, two US updates will offer deeper insight into the strength of the economic tailwind as the crowd considers the potential for repercussions linked to a slower growth in China.
Eurozone: Money Supply (08:00 GMT): Is the risk rising that the European Central Bank’s (ECB) inflation target will become harder to reach? On the margins, yes, advised ECB’s chief economist and executive board member Peter Praet. As a result, “there should be no ambiguity on the willingness and ability of the governing council to act if needed,” he said yesterday.
Hold that thought as we look at today’s monthly update on money supply. In the current climate, the crowd’s in no mood for a substantially lesser rate of growth in liquidity. In the wake of global market turmoil and heightened concerns about China's economic outlook, Praet’s cautionary remarks on inflation are a reminder that the modest gains we’ve seen for the broad macro trend in Europe this year remain susceptible to deflationary shocks.
Economists, however, expect that the recent growth rate for money supply will remain more or less steady. Econoday.com’s consensus forecast sees the year-on-year change for the broad measure of money (M3) dipping slightly to 4.9% in July against 5.1% in the previous month. Higher would be better at this point, but a 4.9% annual growth rate is still a decent pace, which is to say well over twice the ECB’s 2% target rate.
But there’s a long way to go when you consider the annual rate of consumer inflation for the euro area is a mere 0.2%. Deflation, in other words, is still just a rounding error away.
US: Initial Jobless Claims (12:30 GMT): All eyes will focus on today’s revised US GDP data (12:30 GMT) for the second quarter - the news is expected to be bullish. The government is on track to raise its estimate of Q2 growth to 3.1% from the 2.3% gain in the initial report, according to Briefing.com.
Good news, of course (assuming the estimate holds up). But the second quarter is ancient history in terms of deciding if the recent market turbulence is noise or a fundamental threat for the US economy. As such, today’s jobless claims data will provide more timely insight about what comes next.
Indeed, the labour market is still an optimist’s best friend. If and when this critical indicator flashes trouble ahead, the outlook for the US economy will turn substantially darker. But for the moment, the numbers continue to paint a relatively bright profile. Next week’s August report on nonfarm payrolls will be a critical test. Meantime, the recent updates for jobless claims imply that growth still has the upper hand.
Another installment of upbeat numbers is expected for today’s release. Econoday.com’s consensus forecast calls for a modest drop of 7,000 to a seasonally adjusted 270,000 for last week. In other words, new filings for unemployment benefits are on track to stick close to the 40-year low of 255,000 that we saw at one point in July.
On the other hand, an unusually big rise in today’s update would be an ominous message given events in recent weeks. But analysts think that’s unlikely. If they’re right, and claims stick close to recent levels, the odds will rise that next week’s employment report from Washington will deliver a new round of optimism on the macro front.
US: Pending Home Sales Index (14:00 GMT): Housing data has been strong lately, with sales and construction activity posting substantial improvements in July. This week’s updates have also fallen in line with the bullish trend.
New home sales jumped 5.4% last month, posting a solid rebound after disappointing data for June. Meanwhile, demand for mortgage applications continued to firm last week. Although total applications advanced a thin 0.2% for the week, the rise marks the sixth weekly advance. That’s in sharp contrast with numbers from earlier this year, when weekly losses dominated.
Today’s monthly report on pending home sales - considered a leading indicator for housing activity - will be closely watched as the crowd looks for fresh insight into the US macro trend.
Economists are looking for more good news. Econoday.com’s consensus prediction anticipates a 1% increase in pending sales for July. That’s a solid advance and one that will certainly be welcome news as anxious investors look for signs that the US economy can withstand any fallout from the widespread assumption that China’s growth rate is slowing.
For some analysts, this week’s news of stronger sales of new homes is telling. “This is evidence of the ‘some further improvement’ in the economy that the Fed is waiting for to raise rates,” the chief financial economist at MUFG Union Bank said on Tuesday.
A rate hike is still a debatable view after such a volatile period of market action. Nonetheless, Chris Rupkey’s analysis will resonate a bit deeper if today’s report on pending home sales reveals a higher level of demand.
Disclosure: Originally published at Saxo Bank TradingFloor.com