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3 Numbers: Germany On The Rebound, EU Retail, U.S> Mortgages

Published 04/08/2015, 01:44 AM
Updated 07/09/2023, 06:31 AM

Europe’s budding economic rebound is in focus again today with the monthly update on new orders for manufacturers in Germany. We’ll also see new numbers on retail sales for the Eurozone. Later, the weekly release on US mortgage applications will provide fresh perspective for deciding if there’s a spring revival in progress for housing.

Germany: New Manufacturers’ Orders (06:00 GMT) The economic heart of the Eurozone continues to impress with upbeat numbers. Yesterday’s March release of business survey data for Germany’s services sector, for instance, delivered a solid signal for growth. The purchasing managers index (PMI) ticked up to a six-month high, supported by stronger growth in new orders and increased hiring.

Analysts have been upgrading growth projections too. The median estimate for GDP growth for 2015 is currently 1.8%, based on 33 forecasts from banks and other sources, according to FocusEconomics. That’s up from a 1.6% prediction 30 days ago and 1.4% two months earlier. The current forecast is still modest, although the upward trend lately implies that additional upgrades may be coming.

Perhaps we’ll see the case for continued optimism in today’s monthly release on factory orders, which will provide fresh data for stress testing the case for elevating expectations for Europe’s main economy. Recent data, however, have been choppy, with both the monthly and year-over-year comparisons swaying back and forth between gains and losses.

Today’s update for February is expected to move back into positive territory for both comparisons after January’s declines. Econoday.com’s consensus forecast calls for a 0.8% increase for the annual change, a solid rebound from January’s 0.3% slide. We haven’t seen back-to-back gains for the year-over-year data since last summer. But given the recent improvement in the macro outlook for Germany and the Eurozone, perhaps today’s expected rise in factory orders will mark the start of new phase of sustained growth.

Germany: New Manufacturing Orders

Eurozone: Retail Sales (09:00 GMT) Retail spending is picking up in Europe, according to Eurostat’s official data. The improvement in year-over-year consumption is particularly striking. Inflation-adjusted retail sales increased a solid 3.7% in January compared with the year-earlier level, the best gain in nearly a decade. In monthly terms, spending jumped 1.1%, the most in almost two years. Sharply lower energy costs and a bout of deflation are part of the mix for calculating inflation-adjusted changes. Nonetheless, the improvement is one more set of numbers that imply that a rebound in economic activity is underway.

Why, then, is the business survey data for the retail industry in Europe still flashing warning signs? Markit’s Retail Purchasing Managers Index (PMI) for the Eurozone has been signalling contraction since last summer. In the February update, the PMI dipped to a four-month low of 46.4 – well below the neutral 50 mark. According to this data, retail demand is contracting, and the downturn is accelerating.

If the PMI numbers are accurate, we’ll see the discouraging evidence in today’s update of the hard data for February. For additional context, take a look at the monthly release of the PMI figures, which arrive at 08:10 GMT, just ahead of Eurostat’s retail spending report. With both releases in hand, we may be able to clarify what’s really going on for Europe’s retail trend.

Meantime, the case for projecting growth for the Eurozone overall looks compelling, based on a range of data. That includes retail sales. As such, it wouldn’t be surprising to learn that today’s PMI reflects a brighter tone in today’s estimate for March.

Eurozone Retail Sales Volume vs Retail PMI

US: Weekly Mortgage Applications (11:00 GMT) The housing market has been challenged lately, but the trend may be improving as the spring buying season gets underway. Exhibit A for optimism is the rebound in demand for new mortgage applications. The revival is only two weeks old, but the last two gains mark a clear shift in the trend, so far.

For the two months through mid-March, demand for new mortgages was flat to contracting, according to the weekly estimates from the Mortgage Bankers Association (MBA). But the latest updates suggest that the spring season has brought a revival in demand. The volume of new loan applications rose 4.6% on a seasonally adjusted basis for the week through March 27. The advance follows the previous week’s hefty 9.5% gain.

“The increase in purchase volume was led by a nearly 6% increase in both conventional and government markets, perhaps signaling that households are finally ready to begin the home-buying season," MBA's vice president of research and economics said last week.

Is the return of weekly increases in loan applications a sign that the housing market is returning to a solid growth trend? It’s too early to say for sure, but the case for answering “yes” will rise a notch or two if today’s update marks the third straight weekly rise.

US: Weekly Mortgage Applications vs Weekly 30-Y Rates

Disclosure: Originally published at Saxo Bank TradingFloor.com

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