Wednesday is a relatively slow day for scheduled economic releases, although one update that will receive wide attention in Europe is Ifo’s survey numbers that track the mood in Germany's business community. Later, a couple of US reports will shed more light on the prospects for a spring revival in the macro trend - new mortgage applications and the monthly update on durable goods orders.
Germany: Ifo Business Survey (09:00 GMT) Europe’s growth engine has revved up a bit more this month, according to yesterday’s flash estimate of Markit’s Composite Purchasing Managers Index (PMI) for Germany. Private sector business activity increased at the best rate since last July. Key factors include “an improving economic environment and stronger demand from both domestic and foreign markets,” said a Markit economist. “It looks like the German economy is entering the economic fast lane again, with survey data suggesting that we should expect another quarter of solid GDP growth.”
In that case, we should expect to see confirming support in today’s Ifo release. Not surprisingly, that’s what economists are anticipating. Econoday.com’s consensus forecast sees Ifo’s trio of business sentiment benchmarks inching higher again in March. That’s nothing new. Ifo’s measure of the mood in the business community has been signalling improvement since last November and today’s release is widely projected to deliver another chapter for the current revival narrative.
Alas, it’s still debatable if a stronger economy in Germany will lead to something similar for the Eurozone overall. Although there have been some intriguing clues for thinking so, it's still reasonable to wonder how much momentum we'll see. Consider, for instance, that while this month’s PMI is showing renewed vitality in the biggest economy, Europe’s number two economy still looks sluggish at best. Although the March estimate of the France Composite PMI reflected a second month of growth, it’s still a thin expansion and one that slipped closer to flat lining in the latest update.
Nonetheless, one thing is certain: any chance for a brighter macro trend for the Eurozone continues to rest rather heavily on the state of the German economy. On that score, at least, the future appears to be moving in a positive direction. That said, the February round of Ifo’s current situation data dipped slightly even as the outlook numbers posted another gain. Is that a sign that it’s still best to keep optimism in check overall? Good question, and one that may be answered with today’s update.
US: Weekly Mortgage Applications (11:00 GMT) The soft housing market wasn’t quite so soft last month in terms of sales. Both existing and new home sales popped higher. Transactions for new homes were particularly strong in February, jumping to the highest rate in seven years.
By comparison, existing sales, which represent the lion’s share of activity, rose by a relatively modest pace and remain well below the recent peak reached last October. “Severe below-freezing winter weather likely had an impact on sales as more moderate activity was observed in the Northeast and Midwest compared to other regions of the country,” noted the chief economist at the National Association of Realtors, the group that publishes the numbers on existing sales.
By that standard, the sight of even a slight rise in transactions is encouraging. With the harsh winter fading, the acid test for the view that weather’s to blame is now in focus, starting with today’s update on mortgage applications. The weekly numbers on this front have been rather dim lately. New applications have been trending lower since February, falling 3.9% in the last update.
The latest monthly updates on sales suggest that the spring buying season will enjoy a rebound. If so, we should start to see some improvement in the applications data. Spring, after all, officially arrived last week. Let’s see if there’s any sign of a thaw in demand for new mortgages.
US: Durable Goods Orders (12:30 GMT) The last several months have been a bit shaky for demand of big ticket items. But while the trend has wobbled, it’s remained generally positive in the year-on-year comparisons. The relatively firm numbers include so-called business investment - orders for non-defense capital goods excluding aircraft, a corner that’s widely followed for forward intelligence on the economy’s strength, or the lack thereof.
The January update certainly looks upbeat. Business-investment orders rose 0.5% on the previous month, putting the annual gain at over 4%. A more compelling trend can be found in headline orders for durable goods, which increased 2.8% on the month, which translates into a 5.5 percent rise against the level a year earlier.
Are the annual increases a sign that new orders are headed for continued growth? One clue for answering “yes” can be found in yesterday’s business survey data for manufacturing. Markit’s flash estimate of its purchasing managers index (PMI) for March inched higher, reaching a five-month high. “Manufacturing new order levels increased at a robust and accelerated pace in March, driven by improving economic conditions and positive overall spending patterns among clients,” Markit advised.
Corroboration in today’s release would be a bullish sign. Analysts say there's a good chance we'll see firm data. The consensus forecast calls for a comparatively soft rise of 1% for headline orders for February, according to Briefing.com. That’s not particularly impressive, although at this stage the sight of follow-through demand is the key issue. Even a mild rise in February - a month that witnessed weakness in other corners of the economy—would be greeted with cheers.
Disclosure: Originally published at Saxo Bank TradingFloor.com