Another busy day of economic news is on tap for Thursday, including the release of minutes for the European Central Bank’s previous monetary policy meeting. Soon after, two US reports will be widely read as the crowd looks for fresh guidance ahead of tomorrow’s monthly jobs report from Washington. First up is the weekly jobless claims numbers, followed by the monthly update on factory orders.
Eurozone: ECB Minutes (11:30 GMT) Last month’s launch of quantitative easing (QE) in the Eurozone has hardly had time to resonate and already there’s speculation that the European Central Bank’s (ECB) monetary easing program is slated to be downsized. "We expect the ECB will decide to cut back its bond purchases as early as the second half of this year," a DZ Bank analyst told Reuters this week. That’s a speculative view, although today’s release of minutes may provide a clue for deciding if policymakers are in fact leaning in that direction.
The stakes are quite high. Although the Eurozone economy has been showing signs of recovery lately, growth is still sluggish. This week’s release of business survey data for Europe’s manufacturing sector certainly looks encouraging. But as the chief economist at Markit Economics noted, “this is still a fledgling recovery, however, and the overall rate of expansion remains only modest.”
Another busy day of economic news is on tap for Thursday, including the release of minutes for the European Central Bank’s previous monetary policy meeting. Soon after, two US reports will be widely read as the crowd looks for fresh guidance ahead of tomorrow’s monthly jobs report from Washington. First up is the weekly jobless claims numbers, followed by the monthly update on factory orders.
Prematurely nipping the ECB’s EUR1.1 trillion monetary stimulus program in the bud could derail the fragile recovery, in part because elevating this event at this stage would weigh on sentiment in the markets and the real economy. Ultimately, it's all about managing expectations.
Nonetheless, some pundits are already pushing for the central bank to outline an exit strategy... now! But emphasising the end game to the public is risky while the macro trend remains wobbly. Presumably, Mario Draghi and company recognise that loose talk about exit strategies could jeopardise the tenuous improvement that’s emerged in the EUR area recently. Nonetheless, today’s release of minutes from the March 4-5 monetary policy meeting will be widely read in search of clues about what central bankers are thinking.
US: Jobless Claims (12:30 GMT) Yesterday’s disappointing report on private payrolls in March via ADP’s estimate suggests that US economic growth may be slowing for reasons other than a harsh winter. That was also the message in yesterday’s March update of the ISM Manufacturing Index, which slumped to its lowest level since May 2013.
But hold on a minute - the outlook is substantially brighter by way of revised numbers for last month’s survey of manufacturers based on Markit’s purchasing managers index. The final PMI data for March reflected the “sharpest improvement in US manufacturing business conditions for five months”, the company advised.
The state of macro may be a bit muddled at the moment, but perhaps today’s weekly release on jobless claims will provide some clarity. Recent figures suggest that growth is still a reasonable forecast for the US labour market.
Although new filings for unemployment benefits have been volatile lately, claims have posted sizable declines in recent weeks. Today’s release is expected to register a slight gain to 285,000 for the week through March 28, according to Econoday.com’s consensus forecast. If so, claims will still be at a relatively low level, which will ease worries that the labour market’s going into a tailspin.
US: Factory Orders (14:00 GMT) Demand for manufactured goods has been weak for months, but today’s update isn’t expected to offer a sign that a rebound has arrived. Briefing.com’s consensus forecast anticipates a 0.5% decline in the monthly comparison for February. If that holds up, the red ink will mark the seventh straight monthly decrease. Using that forecast for the year-over-year trend translates into a 4.4% slide against the year earlier level, which would be the biggest annual contraction since late-2009.
Some of the weakness is due to falling demand in Europe and Asia, which is blamed on a surging USD. The greenback’s rise has created a headwind for exports of manufactured goods because the bull market in the buck raises the prices of US goods in overseas markets after currency translation.
Whatever the cause, the trend in factory orders doesn’t look encouraging these days. Then again, the latest numbers from Markit Economics suggest otherwise. As noted above, the PMI for the sector rose last month, which Markit says is a sign that momentum is picking up. The upbeat news holds out the potential for an upside surprise in today’s hard data report from the US Commerce Department.
“The US manufacturing sector is clearly regaining momentum after a slow start to 2015,” a senior Markit economist noted yesterday. Does that mean that the crowd’s outlook for today’s update on factory orders is overly bearish? We’ll have the answer shortly.
Disclosure: Originally published at Saxo Bank TradingFloor.com