Europe’s modest recovery is intact, but today’s first look at business sentiment data for May from the European Commission will probably show a mild setback. Later, the US labour market is in focus with the weekly update on jobless claims, followed by a forward-looking metric for US housing via the monthly update on pending home sales.
Eurozone: Business Climate Indicator (09:00 GMT) Last week’s survey data suggests that the Eurozone’s economic recovery is decelerating. At the same time, job creation strengthened, which may be enough to overcome any weakness in other facets of the macro trend. Nonetheless, any signs of slower growth is a risk factor at such an early stage in Europe’s still-precarious rebound.
Markit’s Composite Purchasing Managers’ Index for the Eurozone ticked lower in May for the second month in a row, slipping to 53.4. That’s still comfortably above the neutral 50.0 mark, although consumer confidence has weakened a bit in recent months as well. The European Commission’s measure of the mood among consumers across the Eurozone decreased for the second month in the flash reading for May. We’ll see revised data today, along with the first look at May figures for the EC’s Business Climate Indicator (BCI).
BCI has turned higher in recent months, rising to 0.32 in April – the highest level in nearly a year. But the latest dip in survey data for May to date suggests that BCI’s rebound will stumble today. A mild retreat for the survey numbers isn’t worrisome at this point, although another batch of soft figures will serve as a reminder that Europe’s recovery will be a gradual process under the best of conditions.
Unfortunately, the current climate is well short of ideal conditions for nurturing growth. As usual, there are hazards lurking just around the corner, including the potential return of Grexit risk as a real and present danger. In particular, another deadline looms: June 5, when the Greek government is, in theory, scheduled to repay €300 million to the International Monetary Fund. And if it doesn’t (as some analysts say is more than a trivial possibility)? No one really knows.
Meantime, today’s BCI data will tell us how the mood is holding up in the business community as Grexit risk simmers anew.
US: Initial Jobless Claims (12:30 GMT) The early read on the macro profile for this month is mildly encouraging, but with caveats. This month’s flash data for the US Services Purchasing Managers’ Index (PMI) points to a healthy rate of growth for the sector. The headline figure dipped slightly, but the labour component reflected the “sharpest upturn in payrolls numbers since June 2014”, Markit Economics noted earlier this week. The manufacturing PMI is weaker, but still positive in May.
The key issue at this point is the labour market. So far, employment has held up rather well. April’s solid rebound in payrolls suggests that the economy is stronger than it appears from the perspective of other indicators. The downward bias in new filings for unemployment supports this narrative. Claims have been winding lower over the past two months, touching a 15-year low of 262,000 (seasonally adjusted) in late-April.
The bullish trend has eased back from that milestone: new claims inched up to 274,000 for the week through May 16. But that’s an insignificant move for such a volatile series. Indeed, the four-week average continues to fall, suggesting that payrolls are still poised for growth.
Economists think we’ll see continued support for an upbeat outlook in today’s report. Claims are set to fall slightly, to 270,000, according to Econoday.com’s consensus forecast. Short of a major upside surprise, it’s likely that this data will continue to support the view that the recent economic weakness was only a temporary setback.
US: Pending Home Sales (14:00 GMT) The on-again-off-again housing recovery is on again … maybe.
This week’s April report on new home sales was surprisingly strong – purchases bounced back last month, jumping to an annualised rate of 517,000. That’s close to the highest level since the recession ended in 2009. But the upbeat news follows last week's setback for existing home sales, which fell sharply in April after posting a healthy gain in the previous month.
Meanwhile, home prices continue to trend higher. The S&P/Case-Shiller 20-City Composite Home Price Index rose 5% for the year through March, the most since last summer. But firmer pricing doesn’t seem to be translating into stronger demand this month for mortgages. Applications for new mortgages slipped again last week, marking the fifth consecutive weekly decline.
The mixed messages in housing are confusing, but the pending home sales data – widely cited as a leading indicator for the industry – is flashing a clear signal for the future: growth.
This benchmark gained 1.1% in March, posting its third straight advance and reaching its highest level in nearly two years. “Demand in many markets is far exceeding supply, and properties in March sold at a faster rate than any month since last summer,” said the chief economist at the National Association of Realtors, the group that publishes the pending sales numbers.
The recent strength in pending sales implies that the weakness in other benchmarks will soon give way to more encouraging comparisons. All the more so if today’s update builds on recent gains. In fact, that’s what economists are projecting for the April report – the crowd anticipates a rise of 0.8%. That’s a bit slower than March’s increase but if the prediction holds up, the news will boost the near-term outlook for housing. In that case, maybe the on-again-off housing recovery really is on again. 
Disclosure: Originally published at Saxo Bank TradingFloor.com