As the markets grapple with the macro implications of Sunday’s referendum in Greece, today’s numbers will be that much more influential for deciding how economic trends are faring on both sides of the Atlantic.
First up is an early look at retail spending in Europe via Markit’s purchasing managers’ index for June. Later, a couple of US data points for last month will help clarify the near-term outlook with new figures for the Fed’s Labor Market Conditions Index and the ISM Non-Manufacturing Index.
Eurozone: Retail PMI (08:10 GMT): The fallout from Greece remains to be seen in terms of a macro price tag, but for the moment there’s still no discernible impact on expectations for Eurozone GDP growth in the second quarter. Now-casting.com’s weekly update on Friday continues to anticipate a quarter-over-quarter gain of slightly more than 0.5% for Q2. The prediction represents the best quarterly advance since 2011 … assuming it holds up when Eurostat's official release is published next month.
The Bank of Italy’s Euro-Coin Indicator, a monthly estimate of GDP for the currency bloc, is also holding its ground in the June update at a growth rate of 0.39%. The incremental rise from the previous estimate raises the projected expansion to its highest level in four years by this measure.
Today’s release of Markit’s purchasing managers’ index (PMI) for June will provide additional guidance on how the economy’s faring as the Greece crisis metastasised last month.
For context on what to expect, consider that the hard data on consumption for May eased in last week’s report for the euro area, according to Eurostat. Meanwhile, the year-over-year trend remained above the 2% mark for the second month in a row.
The main challenge in today's release is holding on to May’s advance, which marked the “strongest rise in sales since April 2011”, according to Markit’s press release. If the headline index can at least hold above the neutral 50.0 mark in today’s June estimate, we’ll have a new reason to think that the Eurozone’s recovery may transcend the ongoing political turmoil.
US: Labor Market Conditions Index (14:00 GMT) Friday’s jobs report for June delivered another solid advance for nonfarm payrolls, but there are concerns that the underlying trend is weakening. One cause for concern is the sight of flat wages in the report for June. Another is the slide in the labour force.
“The labour market is good, there’s just not any wage pressure,” noted the chief US economist at Deutsche Bank Securities last week. “The disappointment is on wages and on the participation rate.”
Today’s monthly measure of broadly defined labour market activity from the Federal Reserve will be widely read as the crowd searches for additional clues on what to expect for the timing of the first interest-rate hike. By some accounts, the potential for a September hike is still on the table, although a number of economists say that recent data isn’t strong enough to support a near-term round of monetary tightening.
Perhaps the Fed’s Labour Market Conditions Index (LMCI) data for June will provide a clearer message. In the last two monthly updates, the benchmark has been more or less stuck in neutral by hovering around the zero mark. That’s not terrible, although it's hardly inspiring either. In case, it’s a conspicuous demotion from the relatively elevated levels in late-2014.
Another soft number that keeps LMCI at or near zero will likely be read as a hint that the probability for a September rate hike is slipping.
US: ISM Non-Manufacturing Services Index (14:00 GMT): Another clue for gauging the outlook for the US macro trend in this year’s second half arrives with a widely followed measure of the services sector.
Recent updates suggest that growth is decelerating, according to Markit’s PMI numbers for services. The flash reading for June marked the third consecutive month of lesser growth. Responding to the latest figures, Markit’s chief economist said that “a slowdown in the economy at the end of the second quarter may mean the Fed takes a further pause for thought before hiking interest rates.” (Note that we’ll also see revised PMI figures for June today, with an update scheduled for 13:45 GMT.)
As for today’s first look at the ISM data for services, the numbers are expected to show a relatively stable growth rate. Econoday.com’s consensus forecast sees the ISM Non-Manufacturing Index inching higher to 56.0 for June vs. 55.7 in May.
That’s still at the low end relative to recent history. But if the forecast holds, the news will provide a mildly bullish counterpoint to the view in some circles that the US economy is stumbling.
Disclosure: Originally published at Saxo Bank TradingFloor.com