Industrial production is the main event for economic news today, including releases for France and Britain. Later, the US housing sector is in focus with an update on demand via the weekly figures on mortgage applications.
France: Industrial Production (06:45 GMT): Europe’s No. 2 economy is on track to grow 0.3% in this year’s second quarter, based on survey numbers published this week by the Bank of France. The rise is half the rate of Q1’s surprisingly strong 0.6% advance. But if the central bank’s forecast holds up, GDP will post two back-to-back quarterly increases in the first half of this year – for the first time in France since 2012.
Several measures of economic activity from other sources support the outlook for expansion in Q2. For instance, France’s services sector posted its fourth consecutive month of growth through May, based on Markit’s purchasing managers’ index (PMI). Manufacturing is still contracting, but the degree of deterioration eased last month – a “sign that the sector may be getting closer to stabilisation,” a Markit economist noted last week.
Today’s monthly report on industrial output for April will provide a new perspective on France’s nascent recovery. The general outlook is upbeat. The pace isn't particularly impressive, but if accurate, the sight of another instalment of positive numbers will add hard data to the recent run of encouraging sentiment figures.
Industrial output is expected to rise 0.3% in April vs. the previous month, according to Econoday.com’s consensus forecast. That’s a welcome change from March’s mild 0.3% slump. For the annual comparison, production’s rise is projected to ease to 1.0% vs. 1.3% in the previous annual change.
Nonetheless, another year-on-year rise for industrial activity will mark the fourth straight month of improvement. The rebound is still modest at best, but the fact that it’s ongoing is the crucial factor at this point.
UK: Industrial Production (08:30 GMT): Is Britain’s economy decelerating? A few months ago even asking the question might have been perceived as beyond-the-pale thinking. The UK’s macro trend, after all, was widely hailed as a growth leader among developed nations. But the Confederation of British Industry (CBI) this week warned that “the risks to UK growth are tilted to the downside”.
The influential industry group reasoned that “a messy resolution of the Greek crisis could spark financial market and exchange rate volatility, which could spill over into the real economy". CBI added that: "uncertainty ahead of the EU referendum raises the risk around our forecast of reduced sentiment and a delay in investment spending. On the domestic front, the risk of weaker-than-expected productivity growth continues to pose a threat to achieving durable economic growth.”
For the moment, however, the broad trend still looks encouraging, although growth has eased a bit, based on the monthly GDP estimates from the National Institute of Economic and Social Research (NIESR). The consultancy’s current estimate shows that the economy grew by 0.4% over the three months through April. That’s up a touch from the 0.3% rise during the previous three-month period, although it’s well off the string of 0.6% gains that prevailed in last year’s second half.
Although the UK Manufacturing PMI ticked up to 52.0 in May, reflecting a moderate expansion, a senior economist at Markit Economics issued a cautionary assessment of the data. “Expectations of a broad rebound in UK economic growth during the second quarter of the year are called into question by these readings,” advised Rob Dobson last week. “Manufacturing looks on course to act as a minor drag on the economy, as the sector is hit by a combination of the strong pound and weak business investment spending.”
Today’s monthly release on industrial activity will be widely read as the market looks for more perspective on the debate about the state of Britain’s economy. Recent history shows that growth has decelerated, with industrial activity posting its slowest year-on-year gain in February and March in nearly two years. A number of analysts are expecting another round of lesser growth. If so, CBI’s warning will continue to resonate.
US: Weekly Mortgage Applications (11:00 GMT): The housing sector’s delivered a mixed bag of numbers in recent months, but some analysts are looking for a stronger period of growth after a rough winter.
Recent numbers provide a degree of support for thinking positively, including existing home sales, which are ahead by more than 6% for the year through April. That’s below March’s nearly 11% rise, but April’s gain otherwise marks the strongest year-on-year rise since late-2013. Housing starts are looking stronger, too, with new construction jumping more than 9% in annual terms through April – the best pace in three months.
Why, then, don’t we see confirmation in the weekly numbers for mortgage applications, which measures demand for new financing of housing purchases? Demand tumbled 7.6% in the last week of May, according to the Mortgage Bankers Association (MBA). Some of the weakness is related to the Memorial Day holiday for that week. On the other hand, the number of weekly applications has been sliding for more than a month.
Industry trade publication Mortgage News Daily last week noted that “the drop in mortgage applications came despite lower contract and effective interest rates for each of the product types tracked by MBA."
Perhaps there’s nothing more troubling here than a delayed reaction, in which case new applications are poised to rebound and follow the stronger trend in starts and sales of late. Maybe, although another weekly decline in today’s release isn’t going to make the bulls’ case for housing any easier.
Disclosure: Originally published at Saxo Bank TradingFloor.com