Europe’s second-largest economy is in focus today with the July update of business sentiment in France’s manufacturing sector. Later, a couple of US reports are expected to support the outlook for renewed strength in housing.
France: Business Climate Indicator (06:45 GMT): With the near-disaster of Greece fading into the background as a headline-grabbing event, the macro focus is returning to the real economy. The question when it comes to the Eurozone's growth is simple enough: Is there any? Yes, according to recent data. To be precise, the numbers looked encouraging leading up to the acute phase of the European Union’s recent showdown with Greece. The acid test is how the data compares in the months ahead – after the so-called resolution.
A robust answer is still weeks away at the earliest, although the early clues suggest that the recovery will remain intact. Markit’s Eurozone Composite Purchasing Managers Index, for instance, reflects economic growth at a four-year high for the manufacturing and services sectors, according to the June report.
Today’s update on business sentiment in France for this month will provide fresh context for evaluating Europe’s second-largest economy, which has been posting robust gains lately. First-quarter GDP for France rose 0.6% on a quarter-on-quarter basis. The advance is second only to Spain among the major economies in Europe, according to Eurostat.
That rate is probably due to decelerate a bit, although the bigger question is whether France will continue to grow at a moderate rate for a sustainable period? The stockmarket seems to think that's a distinct possibility.
The country’s main equity index, the CAC 40, has rebounded sharply in recent weeks after reaching a five-month low earlier this month. That's a vote of confidence that the year's second half will bring upbeat news on the macro front.
Ditto for today’s update on business sentiment in the manufacturing sector for July. Econoday.com's consensus forecast sees the number du jour sticking close to the four-year high in July.
The government’s Business Climate Indicator for the goods-producing sector is on track for a fractional dip to 100 (effectively unchanged from June), but otherwise hinting that France’s recovery will endure in the second half of 2015.
US: Federal Housing Financing Agency House Price Index (13:00 GMT): Last week’s report on residential housing construction suggests that the market is finally showing genuine signs of recovery after a rough winter. Housing starts, driven by multi-family production, jumped nearly 10% in June, pushing total construction activity close to a post-recession high.
The upbeat numbers follow an encouraging rise in the June payrolls report, which posted a solid gain above the 200,000 mark. Given that tailwind, the latest revival in housing construction sends a positive signal that reverberates through the economy.
Today’s monthly update from the government on prices will provide another round of data that will shape expectations. Although the monthly figures can be volatile, keep an eye on the year-on-year comparison, which has been holding steady at a 5% plus growth rate this year.
The moderate pace is on track to continue in today’s update on prices for May, according to Econoday.com. The consensus forecast sees prices rising a solid 0.4%, which translates into a 5.4% year-on-year gain. If the prediction holds, the news will dispense another reason to argue that the housing market is poised for healthy growth in the near term.
US: Existing Home Sales (14:00 GMT): Today’s monthly update on existing home sales offers another look at the state of housing. Here too the outlook has brightened relative to numbers published earlier in the year.
Indeed, in the previous release, sales in May surged to the highest level in over five years. Notably, the percentage of first-time buyers continued to rise, representing nearly a third of overall sales – up from 30% in April and 27% in May. That's a clue for thinking that the recent upturn in sales will be sustained.
The May release on pending home sales – a leading indicator for demand – also points to continued growth. "The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring," recently noted the chief economist at the National Association of Realtors, the group that publishes the existing and pending sales figures. “It's very encouraging to now see a broad-based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive.”
The recovery is projected to bring another boost for optimism in today’s update on sales. Briefing.com’s consensus prediction anticipates a rise in sales to 5.40 million (annualised) in June, up from May’s 5.35 million.
If the estimate’s correct, the outlook will strengthen for arguing that housing (and the US economy generally) is set to accelerate in this year’s second half. In turn, the notion that the Federal Reserve Bank may start to raise interest rates in September will resonate in the markets.
Disclosure: Originally published at Saxo Bank TradingFloor.com