Today’s key numbers come out during the European morning, and with the markets in jubilee mode from yesterday’s good economic news, it is possible that today’s numbers provide us with a moderately positive market day to end the week. The US June durable goods orders will be published at 12:30 GMT, which will set the mood for the rest of the US session.
Euro area June M3 Money Supply & Lending Data (08:00 GMT)
The M3 monetary aggregate in June is expected to show an increase of 1.1 percent on a year ago, slightly higher than the 1 percent in June. The EUR area’s deleveraging and associated decline of the loan stock is clearly visible from the attached chart. In fact, both M3 growth rate and loan stock have been trending down since late 2012, but since the beginning of 2013 both series have remained flat and could be preparing for a move toward higher levels. That would fit the big picture, as the European Central Bank’s (ECB) comprehensive assessment of the banks, economic pick-up in crisis countries, strong German economy and possible relaxation of fiscal austerity could begin prying open the flood gates of lending.
The Brussels-based think tank Bruegel argued in March 2013 that a creditless recovery in the EUR area would be difficult or impossible, as only few developed countries have pulled off such a trick, and many of the successful ones have benefited from a devaluing currency, which is something that the EUR members have no control over. Perhaps the European Central Bank’s targeted Long-Term Refinancing Progra could provide the credit supply, while the Federal Reserve’s shift to a tightening bias could push down the EURUSD?
It is worth noting that while the M3 growth rate has trended lower and hit negative levels, the narrow M1 growth rate has actually increased since mid-2012 and the M3 might not be the best monetary indicator to watch: the narrow M1 growth rate has been trending higher since mid-2012. See ECB’s website for the definitions of the different aggregates, and for the press release of today's data release.
Germany July Ifo Business Climate Index (08:00 GMT)
The consensus forecast was expecting July’s Business Climate Index to decline slightly to 114.5 from 114.8 in June. Markit published yesterday the flash purchasing manager indices (PMI), and the German PMIs were clearly better than expected, and possibly breaking the negative trend that has been in place since the end of 2013. As July’s service PMI rose even more than manufacturing PMI did, today’s Ifo index and its sectoral breakdown data could shed more light on whether this latest spike of the sentiment barometers is a shift to better economic times or just a correction following the stabilisation in Asian economies.
As investors have thus adjusted their real-time but unpolled expectations higher, there is always a possibility of a negative market reaction, even following a positive report. The biggest danger would be if the manufacturing sector’s weakness still shows on the Ifo report – that could create uncertainties on whether the optimism that Markit’s PMI picked up yesterday is warranted. It should be remembered that the shooting down of the passenger jet in Ukraine and the currently planned additional economic sanctions against Russia have not been in the public domain at the time of the survey, and thus strong numbers could be paid little less attention. Perhaps the GfK Consumer climate survey at 06:00 GMT could be worth watching – GfK's press release will be posted here and Ifo's here.
UK Q2 Gross Domestic Production (08:30 GMT)
The economy is expected to have grown by 0.8 percent in the second quarter, an increase of 3.1 percent from year ago. This is the strongest quarter in four years. A revision to a higher reading could lead to increased expectations of a rate hike in the near future, which would be positive for GBP, while a revision lower would have the opposite effect.