Thursday’s another busy day of economic news, including the first European Central Bank press conference and policy announcement since the crisis in Greece shook the Eurozone’s foundation in recent weeks. Later, two US updates will test the case for optimism on the macro outlook. First up is initial jobless claims, followed by the monthly report on sentiment among home builders.
European Central Bank Announcement (11:45 GMT): A lot can happen in six weeks. When the central bank delivered its last formal policy announcement, there was still hope that the crisis in Greece could be solved with minimal damage. More than a month later, the Eurozone remains intact, but it’s been shaken to its core, largely because of the ill-advised design of marrying a currency union without the benefit of fiscal integration.
In any case, today’s statement (and the press conference that follows at 12:30 GMT) will be closely analysed for how, or if, the ECB’s thinking has changed since the Grexit circus pushed the euro area to the brink of disaster in recent weeks.
Raising interest rates is, for obvious reasons, not on the table at the moment, but Greece will surely be topical. Among the key issues that will probably animate today’s proceedings: how might the ECB respond if macro conditions for the Eurozone overall turn rocky again?
Quantitative easing is already in force and is on track to run for more than a year. But is Mario Draghi prepared to do more? If so, what are the tools that he might deploy and in what capacity? In summary, what's in the ECB's bag of tricks that might help calm a still-volatile climate?
On that note, what’s the ECB's current outlook for the Eurozone economy? Private data suggests that a modest recovery endures. Does the central bank agree?
There are many crucial issues on the table for today’s announcement and follow-up press conference. And just to keep things interesting, Greek Prime Minister Alexis Tsipras is facing rebellion in the ranks of his anti-austerity Syriza party as he struggles to win support for the latest bailout deal he agreed to a few days earlier.
As we go to press, there's cautious optimism that Tsipras will prevail and new legislation will push through more austerity in Greece. But nothing's assured. The question is whether the ECB can help soothe frayed nerves.
US: Initial Jobless Claims (12:30 GMT): Federal Reserve Chair Janet Yellen outlined a moderately upbeat economic outlook in testimony to Congress yesterday. "Looking forward, prospects are favourable for further improvement in the US labour market and the economy more broadly," she advised in prepared remarks. The central bank’s monetary policy committee “expects US GDP growth to strengthen over the remainder of this year and the unemployment rate to decline gradually”.
This week’s unexpected drop in retail sales in June suggest otherwise, but apparently the Fed head thinks the surprising slump in consumption last month is mostly noise. The main source for optimism, as she explained, is the upbeat trend in payrolls, which posted a solid 223,000 increase last month.
Assuming that the labour market will continue to grow at a monthly rate of 200,000-plus, the US macro trend remains on track for moderate growth. But there’s a glitch, or so one can argue based on the latest upward bias in jobless claims. This leading indicator has jumped sharply in the last two weekly updates, pushing the number of new filings for unemployment benefits to a four-month high for the week through July 4.
It could be a short-term diversion, of course. Claims, after all, are quite volatile from week to week. Economists are emphasising that point by predicting that today’s update is on track to fall by 15,000 to a seasonally adjusted 282,000, according to Econoday.com’s consensus forecast.
Sounds good, but if analysts are wrong and claims rise above the psychologically significant 300,000 mark today, the news will offer a new reason to wonder if Yellen’s current optimism about the near-term future is misguided.
US: Housing Market Index (14:00 GMT) The housing market has strengthened in recent months. The combined sales of new and existing homes in May reached an eight-year high. Meanwhile, new residential construction has rebounded, also touching an eight-year high in April before pulling back in May.
The key variable, of course, is the labour market. For the moment, the numbers still look positive, although it will be useful to see if today’s jobless claims release suggests otherwise.
Meantime, sentiment in the home building industry still looks encouraging. In the June report, the confidence index increased to 59, the highest level since last September. The gain reflects “growing optimism among builders that housing will continue to strengthen in the months ahead”, said the chief economist at the National Association of Home Builders, the group that publishes the Housing Market Index (HMI).
Analysts are projecting that HMI will hold on to June’s gain. Econoday.com’s consensus forecast calls for no change in the July reading. If so, the case will strengthen for expecting that tomorrow’s monthly release on new residential construction activity will deliver more upbeat news.
Disclosure: Originally published at Saxo Bank TradingFloor.com