- Germany’s Ifo Business Climate Index may show another rise in the April update
- New home sales in the US are on track for another modest gain in March
- Recent data raises doubts about the prospects for a rebound in US manufacturing
- The Dallas Fed update will offer another data point for managing Q2 expectations
Sentiment data for Germany's business sector is today’s main fare for Europe’s macro menu with the release of the Ifo Business Climate Index for April. Later, two US numbers will be closely read as the crowd looks for more guidance in the wake of mixed economic news: New home sales for March and the April numbers for the Dallas Federal Reserve's manufacturing index.
Germany: Ifo Business Climate Index (0800 GMT): Sentiment data for April offers a mixed bag for assessing Germany’s economy at the start of the second quarter.
Will today’s update on the mood in the business community via the Ifo Institute offer a similar view? For some perspective, let’s review how the preliminary numbers for previously released data in April stack up.
The ZEW Indicator of Economic Sentiment for Germany offers a relatively upbeat outlook, albeit with a caveat. On the bright side, the expectations index increased for the second month in a row this month, reaching the highest level so far this year.
But the latest value is still far below the readings throughout much of 2015. Note, however, that the current conditions index continued to slide, dipping to the lowest value in more than a year.
Weighing on sentiment for Europe's export-focused leader is slower growth in China and concern about a possible UK exit from the European Union, ZEW’s head of research noted.
Flash data for purchasing managers’ indexes in April also delivered conflicting news. Manufacturing sentiment ticked higher to a three-month high, although the PMI is still hovering close to a stagnation reading. Meanwhile, Germany’s Services PMI eased to a six-month low.
“The German private sector economy is continuing its unspectacular expansionary trend at the beginning of the second quarter,” a Markit economist advised in Friday’s update.
Today’s Ifo data will provide more context for defining “unspectacular”.
US: New Home Sales (1400 GMT): Last week’s news on existing home sales delivered an upside surprise. Economists were looking for a lacklustre report but the actual data for March came in well above the consensus forecast.
The news followed an earlier report on soft levels of residential housing construction, which slumped in the final month of the first quarter to the lowest level since last October.
Today’s update focuses on newly built houses, a small subset compared with existing sales but valuable nonetheless for monitoring the housing trend. Recent updates for this data set point to a modestly firmer trend.
After a weak run of sales in last year’s second and third quarters, the numbers since October 2015 have rebounded a bit. Sales of new houses in February inched up to an annualised rate of 512,000 (seasonally adjusted) - close to the highest level over the last 12 months.
Nonetheless, the weakness in newly-issued building permits for residential construction in March raises questions about the second quarter and beyond. This leading indicator for housing dipped to an 11-month low last month. The optimistic spin is that the relatively warm winter led to strong growth in February, which came at the expense of March.
The good news is that today’s update is on track to post a modest rise of 13,000 to 525,000 units for March, according to MarketWatch.com’s consensus forecast.
If the forecast holds, new home sales will reach the third highest level since the recession ended, providing fresh guidance for expecting that the housing recovery will endure in 2016.
US: Dallas Fed Manufacturing Survey (1430 GMT): Last week's report on manufacturing sentiment via the PMI data for April raises new doubts about the sector’s prospects for a rebound in the second quarter and beyond.
Friday's update contrasts with the ISM Manufacturing Index in March, which posted a modestly positive reading for the first time since last August.
The news was widely hailed as a sign that the embattled manufacturing sector is emerging from a recession. But in the wake of the preliminary PMI data via Markit Economics, there’s a new debate about what’s in store for the second quarter.
“US factories reported their worst month for just over six-and-a-half years in April, dashing hopes that first quarter weakness will prove temporary,” noted Markit’s chief economist.
“Survey measures of output and order book backlogs are down to their lowest since the height of the global financial crisis, prompting employers to cut back on their hiring."
The PMI data is still holding above the neutral 50 mark, but just barely. Note, however, that the PMI numbers have remained in growth territory all along - in contrast with the negative (below 50) values for the ISM index prior to March.
Today’s update of manufacturing activity in April for the Dallas Federal Reserve region will offer another data point to consider for managing Q2 expectations. The release follows April profiles from two other Fed banks, which offer conflicting messages.
The New York Fed’s Empire State Manufacturing Index posted its second month of growth after a stretch of negative readings. But the Philly Fed’s April report was surprisingly weak - the headline index fell back into contractionary territory after a strong March.
Note that the Dallas Fed’s measure of manufacturing has been unusually weak in recent months, a victim of the bear market in the energy sector, which has a relatively high influence in this corner of the US.
As such, today’s update may not offer much relief for thinking positively. Econoday.com’s consensus forecast sees the recession in manufacturing for this corner of the US easing, but the projected rise to minus 9 for April from minus 13.6 in the previous month still equates with a sector that’s mired in contraction.
Disclosure: Originally published at Saxo Bank TradingFloor.com