- Analysts see euro area retail spending rising for the fifth straight month in May
- Brazil’s latest political crisis could take a bite out of its Composite PMI
- That crisis could hurt the recovery in South America’s largest economy
- US factory orders are projected to slide for a second month in May
Retail sales data for the Eurozone in May will be a widely scrutinised in today’s economic news as the market looks for more signs of recovery. We’ll also see a new update on Brazil’s GDP trend via the June figures for Composite PMI, followed by the May update on US factory orders.
Eurozone: Retail Sales (0900 GMT) The outlook for Europe’s economic recovery is expected to receive another round of confidence-building news in today’s monthly update on retail spending.
Factory orders data may clear up confusion about the state of US manufacturing, with ISM data showing the sector as bullish, but PMI data showing it as subdued.
Economists are looking for sales to remain positive in May for a fifth month, according to TradingEconomics.com’s consensus forecast. The year-over-year trend is on track to hold above 2% for a third month. If the upbeat forecast holds, the news will add to the general sense that economic activity in the euro area is on a sustainable growth path.
The improvement appears to bubbling across several economic sectors. Monday’s survey update on manufacturing, for instance, continued to deliver encouraging news with the Eurozone Manufacturing PMI inching up to a 74-month high in June.
“There’s no sign of the impressive performance ending any time soon,” said IHS Markit's chief business economist".
Optimism about the year ahead has risen to the highest for at least five years, order backlogs are building up at the fastest rate for over seven years and factories are reporting near-record hiring as they struggle to deal with the upturn in demand.
Analysts expect that today’s update on the hard data for retail sales will provide a comparable story line for the macro outlook.
Brazil: Composite PMI (1300 GMT) The recovery is facing new headwinds, in part because political turmoil is roiling President Michel Temer, who's facing corruption charges.
South America’s largest economy still appears to be rebounding from a deep recession, but analysts think that growth will be slower than previously expected. The softer outlook has weighed on Brazil’s stock market, which suffered a sharp selloff in May and continues to trade near the lowest levels of the year to date.
Meanwhile, the currency has been weakening against the US dollar. The Brazilian real has been trading around the $3.30 mark recently, up from $3.06 in late-February.
Overall, traders are anticipating that economic reforms championed by President Temer will face delays and setbacks as he struggles to focus amid a new political crisis. The question is whether a deeper level of pessimism is warranted for the macro outlook.
Today’s June release of the Composite PMI, a proxy for economic growth, will provide a fresh clue. Economists are managing expectations down. Brazil’s macro trend is projected to slip back into negative terrain in June for the first time since January, based on TradingEconomics.com’s consensus forecast.
US: Factory Orders (1400 GMT) Manufacturing activity picked up sharply in June, according to the ISM Manufacturing Index.
Good news, unless you also read the latest update of the Manufacturing PMI, a competing measure of the mood in the sector. The PMI last month slipped to 52.0, signalling “subdued” growth for the sector. “Manufacturers reported a disappointing end to the second quarter, with few signs of growth picking up any time soon,” said Chris Williamson, chief business economist at IHS Markit.
In sharp contrast, the news was bullish via the ISM data published on Monday. The index’s jump to 57.8 in June is near a three-year high, a climb that suggests a strong run of factory activity in the months ahead. The increase was far above Wall Street’s expectations for a 55 reading.
Clearly, one of these indexes is dead wrong. Only time will tell which one, but perhaps today’s hard data on factory orders for May will reveal the true trend. Based on expectations, the ISM data looks headed for a comeuppance. Econoday.com’s consensus forecast sees factory orders slumping 0.6% in today’s release – the second straight monthly decline and the deepest setback since last November.
If the forecast is right, the implied year-over-year change for factory orders will go negative for the first time in eight months. In that case, the case will weaken for favoring the ISM survey’s sunny outlook for manufacturing over the warning sign that’s developing in the PMI figures of late.
Disclosure: Originally published at Saxo Bank TradingFloor.com