- Will the Eurozone Composite PMI continue to forecast faster Q4 GDP growth?
- How will the 'no' vote in the Italian referendum affect the Eurozone?
- US ISM Non-Manufacturing Index expected to rise for November
- US Labor Market Conditions Index on track to tick higher for November
The results of Sunday's referendum in Italy are front and centre today as the market digests the implications of the "no" vote for the Eurozone. Many believe it is a fresh blow to the European Union.
Meantime, the trading week begins with a busy schedule of economic reports, including revised November numbers for the Eurozone Composite PMI. Later, two US updates for November will be widely read: ISM Manufacturing Index and the Labor Market Conditions Index.
Eurozone: PMI Composite Output Index (0900 GMT): GDP growth is expected to improve in the fourth quarter, rising to a 0.45% quarterly pace – the highest since Q1, according to last week’s revised estimate via the Euro-Coin Indicator.
Now-casting.com’s latest Q4 estimate projects a similar gain: just below the 0.5% mark. Will today’s revised PMI data for November also forecast stronger Q4 growth?
Yes, according to the consensus forecast. TradingEconomics.com’s numbers show that the crowd’s looking for the Composite PMI’s revision to hold at 54.1, matching last week’s flash estimate for November.
In that case, GDP’s implied Q4 growth rate will remain at 0.4%. Although a touch softer than the projections cited above, a 0.4% increase still marks an improvement over the 0.3% rise in Q3.
Keep in mind, however, that Sunday’s No vote in Italy (delivered this morning in Asian time) on constitutional reform has elevated political risk which could shake confidence in the Eurozone’s future.
Prime Minister Matteo Renzi said he would resign after the country rejected his plan on government reform.
The resulting political vacuum may soon bring Italy’s Eurosceptic Five Star Movement to power. In that scenario, the economic outlook could suffer amid rising uncertainty about the ramifications for the euro area.
US: ISM Non-Manufacturing Index (1500 GMT): Growth in the dominant slice of the US economy appears to be accelerating and today’s update on sentiment data for the services sector is expected to reaffirm the upbeat outlook.
The ISM Non-Manufacturing Index is on track to tick higher in today’s November report, according to TradingEconomics.com’s econometric forecast.
The survey benchmark is projected to rise to 55.6, up modestly from 54.8 in the previous month and well above the neutral 50 mark that separates growth from contraction.
The previously released flash data for the US Services PMI in November already points to a pick up in growth. Although the headline index dipped fractionally, last month’s initial reading was the second highest for the past 12 months. Meanwhile, new business activity increased at the fastest pace in a year.
“The November PMI surveys provide the first snapshot of US business conditions in the wake of the surprise election result, and show a reassuring picture of sustained solid economic expansion and hiring,” said the chief business economist at IHS Markit.
It’ll be useful to see how today’s ISM report compares (along with the revised Services PMI for November that’s scheduled for 1445 GMT).
Last week’s upbeat estimate of private payrolls via ADP suggests that employment growth may be accelerating.
“The labour market feels very good,” noted the chief economist at Moody's Analytics, which co-produces the data with ADP. “Mr Trump is inheriting a very strong economy.”
If that’s a reasonable view, supporting evidence should be clear in today’s ISM data.
US: Labor Market Conditions Index (1500 GMT): Although the ADP Employment Report was surprisingly strong for November, the official report on private payrolls was considerably less upbeat.
Which dataset is signalling where the trend is headed? Perhaps today’s release of the Federal Reserve’s broad-minded measure of labour conditions will offer an answer.
In the last update, the Labor Market Conditions Index (LMCI) rebounded to positive territory for the first time in three months.
The improvement suggests that the trend is strengthening, although Friday’s update from the Labor Department on payrolls for November leaves a bit more room for doubt compared with the stronger gain in the ADP numbers.
“The labour market is still healthy, and perhaps operating at or beyond capacity,” noted the chief US economist at JPMorgan Chase.
Meantime, TradingEconomics.com’s econometric forecast for LMCI in November points to another round of improvement in the Fed’s labour market benchmark: a rise to 1.2.
If so, the index is on track to rise to its highest level since July, which will mark the second straight positive reading. If the prediction is accurate, the news will boost expectations that jobs growth may accelerate in the months ahead.
Disclosure: Originally published at Saxo Bank TradingFloor.com