Monday’s a slow day for economic news, in part because of the Labor Day holiday in the US. The sleepy news cycle puts Germany’s economy in the spotlight with the release of industrial production data for July.
Later, Sentix updates its index of investor sentiment for the Eurozone. Meantime, the crowd will be monitoring EURUSD in the wake of last week’s comments from the European Central Bank, which advised that it's prepared to up its game for juicing economic growth.
Germany: Industrial Production (0600 GMT): July’s factory orders in Europe’s largest economy tumbled the most since January, raising questions about the durability of the modest recovery in the euro area. The hefty 1.4% slide against June was attributed mostly to weaker foreign demand. Orders from within Europe, by contrast, remained firm.
The optimistic interpretation of the figures sees the latest stumble as a “technical breather after a strong rally,” said a UniCredit economist. That's also the spin from Germany's economy ministry, which advised that the broad trend remained "sharply upwards".
Sentiment data in the manufacturing sector supports an upbeat view. Markit’s purchasing managers’ index (PMI) for Germany rose to a 16 month high in August “amid a sharp rise in new orders”, the press release noted. That's a clue for thinking that July’s stumble in factory orders is a temporary setback.
Even so, the upbeat outlook may not help with today’s July report on industrial activity. Nonetheless, output has been enjoying a strong run lately. In June, production jumped 7.6% against the year-earlier level (in unadjusted terms). The sizzling pace will likely to taper off in July, although a number of analysts are still looking for a solid annual gain.
Nonetheless, the softer growth rate for China this year highlights a potential wildcard for Germany’s export machine. Today’s numbers on industrial activity will help clarify the risk outlook at a time when concerns about the global economy are on the rise.
Eurozone: Sentix Investor Confidence Index (0830 GMT): Europe’s leading equity markets are well below their spring highs, which implies that today’s monthly survey data on the mood among investors will have a tough time holding on to its recent gains.
A substantial decline in Sentix’s mood metric for the Eurozone would mark a sharp break with the recent run of bullish numbers. After running sharply higher in late 2014, the Investor Confidence Index has been more or less flat this year. That’s still an impressive performance considering the turmoil of late via the crisis in Greece and the market turbulence that was set off last month after China announced a currency devaluation.
In any case, the future continues to look challenged for the global economy, although Europe’s near-term outlook is still relatively stable. Now-casting.com’s current estimate of Q3 GDP growth for the currency union ticked up slightly to 0.33%in Friday’s projection – unchanged from Q2’s pace.
Growth at 0.3% is a lacklustre gain, but at least the current projection is stable. But is that assuming too much in the current climate? Today’s Sentix data will set the tone for deciding how to answer.
EUR/USD:The dovish commentary emanating from Mario Draghi’s lips last week took a bite out of the EURUSD. The European Central Bank chief said that further monetary stimulus was a possibility...if needed. Although modest economic growth is still the consensus view, the ECB’s new forecast anticipates “a somewhat weaker pace than expected”.
Meanwhile, ECB governing council member Ewald Nowotny warned that negative inflation may be a possibility in the months ahead.
The slightly higher probability that the ECB will be forced to extend and/or strengthen the current round of stimulus inspired the euro's bears. The EURUSD fell sharply after the bank’s revised outlook hit the streets. As of Friday’s session, the euro had weakened to roughly 1.11 US dollars, the lowest level in more than two weeks and well below the recent intra-day high of nearly 1.165 on August 24.
The bearish sentiment was tempered somewhat after the crowd learned that job growth in the US was substantially weaker in August than expected. Nonfarm payrolls rose by just 173,000 last month – well below the consensus forecast of 223,000. The disappointing data suggests that the Federal Reserve’s rate hike will be delayed – again.
The soft data for the US implies that the EURUSD will remain in the trading range that’s prevailed since April – in the neighbourhood of 1.05 to 1.15, based on daily data. A break, one way or the other, will require a clear catalyst in the economic numbers, on either side of the Atlantic.
The next major opportunity for an attitude adjustment: tomorrow’s preliminary estimate of Eurozone GDP. But this data is expected to be a yawn, or so Econoday.com’s consensus forecast suggests - a 0.3% quarter-on-quarter increase, unchanged from Q2.
Disclosure: Originally published at Saxo Bank TradingFloor.com