It’s a slow day for economic reports in the US, but several new data points for Europe and the UK will provide new guidance for the macro outlook. First up is the July update on business sentiment in France. We’ll also see new data for the British retailing sector via the CBI Distributive Trades Survey. Later, the European Commission publishes its monthly report on consumer confidence in Europe.
France: Business Climate Indicator (06:45 GMT) The weak man of Europe is in focus again today with the monthly update of the mood among French business leaders. The backdrop is glum with recent data showing signs that the Europe’s second largest economy is, at best, stagnant. That's assuming that France isn't slipping into a new recession, as a number of recent indicators suggest. Markit’s business survey releases for June paint a grim litany, including: 1) the first decline in retail sales in four months; 2) the second monthly contraction for the services sector; and 3) a drop in manufacturing that left the sector’s purchasing managers index at a six-month low for June.
Will today’s measure of business sentiment follow suit? No, according to the consensus forecast. The government’s business climate indicator (BCI) is expected to deliver a relatively upbeat number, at least by French standards. BCI is projected to remain steady at 98 in this morning’s update for July. If so, the index will stick to its lowest level since last September. But a real-time sentiment indicator (and arguably a superior one) suggests that the outlook is still deteriorating. The CAC-40 equity index has been trending lower in recent months, recently falling to the lowest levels since March.
The optimistic view is that France will muddle through. As Bernenberg’s Christian Schulz explained last week: the risks for France - “Europe’s reform laggard” -a re “tilted to the downside for growth and inflation”. Today’s BCI report will provide new context for deciding if the risk assessment warrants more than a subtle warning.
UK: CBI Distributive Trades Survey (10:00 GMT) Britain’s economy has been growing at a healthy pace lately and the overall trend suggests that the expansion will roll on for the near term. But three updates on Monday suggest that growth may decelerate in the summer. Factory orders fell more than forecast this month, according to the monthly survey data from the Confederation of British Industry (CBI). Meanwhile, asking prices for newly listed houses in the UK fell for the first time this year in July, according to Rightmove's House Price Index. In addition, a measure of consumer confidence compiled by Lloyds Bank posted a dip last month, the first decline this year.
The softer data points are hardly a threat to Britain’s growth trend, although the hint of a slightly slower recovery leaves room for wondering if we’ll hear a hawkish surprise in today’s scheduled speech by Bank of England (BoE) governor Mark Carney at 11:45 GMT. “The market seems to be hanging on every hawkish word from Mark Carney,” Nomura International’s executive director of UK corporate foreign exchange sales told Bloomberg yesterday. “We are more likely to see a rate hike from the Bank of England in 2014 than we are from the European Central Bank or the Federal Reserve.”
On that point, the last economic release for Britain before Carney speaks is today’s Distributive Trades Survey figures for July. In contrast to earlier numbers this week, the data is projected to mount a sizeable bounce higher after falling to a seven-month low last month. For additional perspective on what Carney might say about monetary policy, keep in mind that BoE’s Monetary Policy Committee minutes hit the streets at 08:30 GMT, more than three hours ahead of the governor's comments.
EU: Consumer Confidence (14:00 GMT) Economic growth in Germany is slowing while France’s economy is contracting, according to the June data for the Markit Eurozone Composite Purchasing Managers Index (PMI). The benchmark remains above the neutral 50 mark that separates growth from contraction and so there’s still room for thinking that the macro trend in Europe overall will track positive. But the challenges seem to be on the rise at the moment, for reasons that start with the continent’s two largest economies.
Evidence that a feeble recovery for the Eurozone is at risk includes the recent downturn in European Commission’s estimate of consumer confidence. The benchmark for the Euro Area slumped in June, albeit mildly. Analysts expect that this index will hold steady in today’s release. But with the Ukraine crisis still festering, threatening to send economic blow-back across Europe, there’s little wiggle room for interpreting soft incoming economic data.
A downside surprise in today’s release may be seen as an early warning that the macro trend will get worse before it gets better. Now-casting.com has recently revised down its second quarter estimate for Eurozone GDP to a frail 0.2 percent quarter-on-quarter rise - unchanged from the first quarter's increase. Might that slim forecast still be too rosy? A drop in consumer sentiment across Europe via today's release will certainly stimulate discussion on that possibility.