Tuesday’s another slow day for economic updates, although two reports will provide timely news on the outlook for Germany and the Eurozone via ZEW's sentiment indexes. Later, a peek at retail spending in the US for April is in focus with the weekly release of the Johnson Redbook Index.
Germany: ZEW Economic Sentiment Indicator (09:00 GMT): The last major economic release for Germany – new factory orders for February – was unexpectedly soft, but the general outlook remains upbeat for Europe’s biggest economy.
“Four leading German economic institutes have raised their growth forecast for Germany's economy because of falling oil prices and a weak euro,” the BBC reported last week. The chief economist at the Ifo Institute explained the case for a rosy view, noting that “the low oil price leaves the Germans more money for consumption, and the low euro is pushing exports”.
Thinking positively about the macro trend has been the narrative in several sentiment benchmarks for Germany in recent months. Today’s April release for the ZEW Economic Sentiment Indicator, which measures the mood among German financial experts, will test if the positive momentum in this year’s first quarter is on track to roll over into Q2.
The crowd’s assuming no less. Econoday.com’s consensus forecast projects another month of improvement. The expectations data for the April ZEW release is expected to rise to 56.3 – a modest increase over March’s 55.1. If the prediction holds up, this measure of the mood will touch a nine-month high. Macro risk linked with the heightened uncertainty over Greece may be bubbling again, but signs of worry within Europe’s growth engine are on track remain in short supply by way of today’s ZEW update.
Eurozone: ZEW Economic Sentiment Indicator (09:00 GMT): European Central Bank (ECB) President Mario Draghi isn’t shy about taking some credit for the recent improvement in the Eurozone’s economic trend. “Various strands of work initiated in previous years came together to produce a consistent policy response, one that allows us now to envisage with confidence that the weak and uneven recovery experienced in 2014 will turn into a more robust, sustainable upturn,” he wrote in the bank’s newly published annual report.
One can argue that the ECB’s slow response was part of the problem from the start, but never mind. The Eurozone’s numbers have improved lately, albeit modestly. It’s unclear if there’s a sustainable recovery underway that will deliver more than tepid growth, but for the moment the rearview mirror paints an upbeat profile.
Today’s sentiment update for Europe via the ZEW data, which will be released simultaneously with the report on Germany (see note above), will probably deliver a new reason for optimism by building on the recent upside momentum. Indeed, the ZEW Economic Sentiment Indicator for the Eurozone has regained its 2014 losses, rising to 62.4 in March – a 13-month high.
A similar message has been unfolding in other sentiment metrics, including the recent strength in Markit’s Composite Purchasing Managers Index for Europe. Today’s April update of the ZEW data offers an early look at the trend in the second quarter. At this point, simply holding on to the recent gains would be encouraging by suggesting that the recovery is more than a Q1 anomaly.
US: Johnson Redbook Index (12:55 GMT): US economic growth decelerated in the first quarter, and by more than a trivial degree, as yesterday’s March update of the Chicago Fed National Index reminds. The three-month moving average of this business-cycle benchmark slumped to its lowest level in nearly three years.
The first-quarter may be a lost cause – projections for next week's initial Q1 GDP report are projecting a sharp slowdown in growth against the previous quarter. Will economic activity pick up in the second quarter? A number of economists expect as much – a rosy perspective that will be tested in the April releases. It’s still early and so there’s not much data to review, although today’s weekly release of the Redbook numbers will offer some useful perspective on what to expect for the kick-off to Q2.
We already know that retail sales for March posted a rebound, offering some much-needed optimism for the big-picture outlook. The Redbook data, which tracks comparable sales at chain stores, anticipated the government’s upbeat numbers for March. But that's old news. Unfortunately, the data published so far for April offers little support for arguing that the spending revival will continue. Notably, last week’s update from Redbook reflected sharply lesser growth rates for spending. But the Redbook numbers are quirky in the short run. All the more reason to look for additional perspective in today’s release while we’re waiting for the standard reports for evaluating April’s macro profile.
Disclosure: Originally published at Saxo Bank TradingFloor.com