3 Numbers: Italian Industrial Orders, US Chicago Fed Index, EURUSD

Monday’s a quiet day for economic reports, which means that today’s update on factory orders for Italy will grab the crowd’s attention for new insight on the state of Europe’s wobbly economy. Later, the Chicago Fed updates its measure of the US economic trend via the National Activity Index. Meanwhile, keep a close eye on EURUSD as the market re-evaluates the geopolitical risk for the Eurozone in the wake of last week’s crash of a Malaysian jetliner in the Ukraine.

Italy: New Industrial Orders (08:00 GMT): Europe’s on-again-off-again economic recovery is in doubt once more. There’s was never a high degree of confidence that growth was more than superficial beyond Germany’s borders, and there’s a bit less optimism now. The latest clue that the trend is moving in the wrong direction again: second-quarter GDP growth for the Eurozone was revised down slightly to 0.21 percent in Now-Casting.com’s weekly update on Friday. That’s the second lesser weekly estimate in a row and the pace is half the projection for Q2 from early May. New business survey data released last week also suggests that the macro trend faces new headwinds for Europe overall. The main trouble among the big-four economies is France, although the outlook for Germany also took a hit in the latest survey as well.

Adding to the list of new challenges is last week’s tragic crash of a Malaysian airliner in Ukraine, reportedly because of surface-to-air-missiles fired by pro-Russian combatants. The attack is expected to heighten tensions between Russia and the West. The US rolled out a tougher phase of sanctions on Russia last week, before the jetliner crash. Some analysts predict that even deeper sanctions may be coming if the evidence shows that Russia had a hand in shooting down the Malaysia Airlines passenger plane, which claimed nearly 300 victims—half from the Netherlands. In turn, there's more uncertainty about Russia's gas exports, which represent around 30 percent of Europe's supply.

Even if the latest flare-up in Ukraine turns out to be a non-event in economic terms, Europe’s outlook still looks shaky. In search of fresh clues on a sleepy day for economic news, the market will focus on Italy’s update on new industrial orders. The data is useful for anticipating sales in the manufacturing sector. Recent reports have been encouraging: new factory orders in April climbed 6.2 percent over the year-earlier level—the strongest annual pace in seven months and the eighth consecutive increase (measured in unadjusted terms). The June report for the Markit/ADACI Italy Manufacturing PMI suggests that the positive momentum will persist for Europe’s third-largest economy.

Today’s main event is deciding if the government’s data on industrial orders supports Markit’s survey data. Pay close attention to the figures for foreign orders, which have been the main engine for growth in Italy’s factories of late. Domestic demand, by contrast, has been sluggish at best. Italy’s economic prospects overall are still challenged, to say the least. The immediate question: Are the challenges on the rise? Business survey data suggests otherwise. Today’s report from Istat will drop a new clue for deciding if that’s still a reasonable assumption.



US: Chicago Fed National Activity Index (12:30 GMT) The US economy has yet to show convincing signs that growth is accelerating, but there’s a strong case for arguing that moderate growth endures. Although nonfarm payrolls are growing a bit faster these days, the numbers for housing, retail sales and industrial output have softened. Looking at the broad trend, however, suggests that it’s steady as she goes, as I discussed on Friday. My proprietary benchmarks for the US business cycle continue to show that the economy expanded through June and today’s update of the Chicago Fed National Activity Index (CFNAI-3MA) will probably deliver similar news.

In the previous release for May, the economy was growing at a moderately above-trend rate, based on the three-month rolling average for this index from the Chicago Fed. At 0.18, the index was well above danger zone of -0.70. “When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun,” according to the bank. By that standard, recent figures for the index reflect an economy that’s been expanding a slightly faster rate in recent months vs. the winter.

Today’s update of CFNAI-3MA for June isn’t likely to tell us otherwise. A lesser rate of growth is likely, but last month’s data will probably show that business cycle risk remained relatively muted. That was the message in the Conference Board’s June report for its Leading Economic Index (LEI), which increased 0.3%--the fifth straight monthly advance. “The pace of economic activity continued to expand moderately through June,” said Ken Goldstein, a Conference Board economist, in Friday’s release. Today’s Chicago Fed data will likely reconfirm what’s already obvious across a range of indicators for evaluating June’s macro performance.



EURUSD Euro bulls may be an endangered species, but there are no major data releases for today or tomorrow that will change expectations, for good or ill. The macro landscape heats up a bit on Wednesday with the July sentiment updates for French businesses and European consumers. Meantime, there’s a blank slate for fresh numbers for a couple of days for pondering if the Eurozone’s business cycle is sagging once more.

Using EURUSD as a benchmark, one can argue that the forex market is on the fence at the moment. Trading just above 1.35 dollars on Friday, the euro’s recent weakness seems to have found support. But the bears aren’t especially worried at this point, thanks to a recent run of soft data in France and Germany. The terrorism incident in Ukraine last week that brought down a commercial flight certainly doesn’t help boost optimism on macro matter for the Eurozone. Ultimately, it’s all about the economic numbers. But with confidence slipping that Europe’s feeble recovery will survive, much less strengthen, it wouldn’t be surprising to see EURUSD drift lower until (or if) the economic reports later this week and beyond offer a persuasive reason to assume that the euro can hold its ground against the greenback.

For the moment, however, that’s an uphill battle. There's still a clear divergence between the upbeat trend for the US economy and the stagnation for the Eurozone. Add in a higher dose of uncertainty due to terrorism in the east last week and it’s increasingly tempting to sell the euro and wait for more clarity. That doesn't mean we won't see a technical bounce in EURUSD. The percentile rank for the trailing 20-day return is the lowest in over a month. But the macro pressure weighing on Europe can't be denied.