- Eurozone consumer confidence projected to tick higher for December
- US existing home sales likely to dip in November after their recent 10-year high
- EURUSD’s downside momentum inspires forecasts of imminent parity
Consumer confidence for the Eurozone in December is front and centre for Wednesday via the monthly update from the European Commission. We’ll also see new numbers on US existing home sales for November. Meanwhile, keep a close eye on the falling EUR/USD, which is off nearly 7% since Donald Trump’s election.
Eurozone: Consumer Confidence Indicator (1500 GMT): The growth rate for the Eurozone remains on track to inch higher in the fourth quarter, based on recent projections, and today’s report on consumer confidence looks set to provide new support for an upbeat outlook.
Now-casting’s latest Q4 estimate for GDP growth in the euro area continued to hold at a mid-0.4% pace, or slightly above the 0.3% rise in Q3. That matches the Q4 rate currently projected via the Euro-Coin Indicator. The implied Q4 increase via the Eurozone Composite PMI also calls for a 0.4% rise in GDP, according to last week’s update. “The Eurozone economy is ending 2016 on a strong note,” said the chief business economist at IHS Markit.
If the actual data for the Eurozone in Q4 fails to reach 0.4%-plus, the news will come as a surprise relative to what analysts are expecting at the moment.
Today’s flash data on consumer sentiment, however, is projected to provide a bit more comfort for the optimists. Econoday.com’s consensus forecast sees the European Commission’s Consumer Confidence Indicator posting a fractional increase to negative 6.0 for the December estimate. That’s effectively a flat reading, although technically speaking the projected gain will lift the index to its highest reading in a year-and-a-half.
In that case, the upbeat estimates for Q4 GDP growth will continue to roll on.
US: Existing Home Sales (1500 GMT): Does the surprisingly soft pace of new residential construction in November cast a shadow over the outlook for the housing sector in 2017? Not necessarily, according to bullish sentiment in the home-building industry.
The National Association of Home Builders Housing Market Index (HMI) surged to an 11-year high in December, reaffirming that the industry remains bullish on the prospects for ramping up construction activity next year. But there’s a political aspect to the latest improvement, according to the NAHB’s chairman. “This notable rise in builder sentiment is largely attributable to a post-election bounce, as builders are hopeful that President-elect Trump will follow through on his pledge to cut burdensome regulations that are harming small businesses and housing affordability.”
The question is whether the recent rise in interest rates since Trump’s election will continue? If so, will that pose a new threat to the housing sector by making loans more expensive? Much depends on how far and how fast rates rise, assuming they continue to rise at all.
Meanwhile, today’s update on the appetite for purchases isn’t expected to be terribly informative one way or another. Econoday.com’s consensus forecast calls for a moderate slump in sales to 5.535 million units (seasonally adjusted annual rate). Although that’s down from October’s 5.6 million – a post-recession high – demand is still on track to remain relatively robust relative to recent history.
If interest rates are set to rise further, however, housing sales will encounter a new headwind in 2017.
EUR/USD: US dollar strength has taken a toll on the euro, which is slightly ironic since fourth-quarter GDP growth in the Eurozone is expected to tick higher while the opposite is true for the US at the moment. But a mildly firmer macro outlook is no match for the rise of political risk in various forms that appears to be sweeping across the euro area.
It’s debatable how much political uncertainty is weighing on the euro, but there’s certainly no shortage of upheaval potential looming for Europe in the year ahead. In addition to the uncertainty of Brexit, there’s also the question of what repercussions await for the European Union if Italy and France elect euro-sceptic leaders in the spring.
Political change may also be looming in Germany for 2017 if this week’s deadly truck attack on a Berlin Christmas market further weakens Angela Merkel’s coalition on the grounds that a tougher line on terrorism is needed.
“Clearly there’s a lot of political risk on both sides of the English Channel over the course of the next 12 to 24 months,” the head of Group-of-10 foreign-exchange strategy at Canadian Imperial Bank of Commerce observed yesterday. “The legacy of 2016 will be that traditional presumptions in terms of politics and political risk have been turned upside down.”
There’s also the expectation that the incoming Trump administration will juice US growth next year through a policy of lower taxes, lighter regulation, and a new phase of fiscal stimulus. It’s debatable if this is a reasonable view for raising growth projections, but for the moment the crowd’s assuming no less.
It doesn’t hurt the prospects for the US dollar vis-à-vis the euro that the Federal Reserve’s rate hike last week is expected to be followed by three more in 2017. By comparison, tighter policy is nowhere on the horizon from the vantage of the European Central Bank.
It all adds up to a weaker euro that looks inclined to become weaker still. EUR/USD has slumped nearly 7% since last month’s election in the US and there’s no sign that the downward momentum is set to fade any time soon. Indeed, EUR/USD is far below key moving averages, inspiring forecasts that parity between the euro and the dollar may be near.
Disclosure: Originally published at Saxo Bank TradingFloor.com