It’s a relatively quiet day for macro reports, although sentiment in the Eurozone will be under the microscope with a pair of updates for the two largest economies: Germany and France. Curiously, the mood among consumers in Germany has remained upbeat while business sentiment has fallen, so it’ll be valuable to learn if the disparity holds up in today’s release. Later, we’ll see fresh numbers on the mood in France’s business community, followed by the weekly report on demand for mortgages in the US.
Germany: GfK Consumer Climate Index (06:00 GMT) Europe’s biggest economy will be in the spotlight today with an update on consumer sentiment via GfK, a Nuremberg-based market research firm. Of particular interest in the GfK data is the upward bias in its consumer index in recent months – a trend that contrasts with the decline in the more widely followed business survey data from the Ifo Institute.
“The mood of consumers in Germany was exceedingly robust in July this year,” GfK noted in last month’s report. No one will confuse the upbeat mood among consumers with sentiment in the business sector. Indeed, the Munich-based Ifo reported earlier this week that German business confidence declined for the fourth month in a row in August. The soft Ifo numbers are widely attributed to worries about macro blowback from the Ukraine crisis that’s threatening economic activity between Germany and Russia.
Whatever the reason, economists warn that deteriorating sentiment in the business community implies that the German macro trend is decelerating as well. “The German economy continues to lose steam,” Ifo’s president said in a press release this week. Yet there’s still no sign of distress from the consumer perspective, or so it appears based on last month’s GfK data.
That’s encouraging, of course – assuming the GfK numbers hold their ground. That’s a reasonable forecast, based on the modest revival in another proxy for sentiment – the German stock market.
Even if today’s GfK data holds steady at 9.0, as many analysts expect, it’s hardly the basis for a revival in Germany’s macro trend for the immediate future. Nonetheless, a stable reading in the GfK Consumer Climate Index will suggest that the economy, although wobbly, will manage to deliver a lesser but still positive rate of growth for the rest of the year.
France: Business Climate Indicator (06:45 GMT) This week’s political turmoil in Paris over economic policy is another sign that Europe’s second-largest economy will continue to struggle. Economy Minister Arnaud Montebourg resigned on Monday, arguing on his way out the door that fiscal policy is a big problem for France.
“The entire world is urging us – even begging us – to end these absurd austerity policies that are plunging the Eurozone into an economic slowdown,” he said in a statement to the media. “My responsibility as Economy Minister is to tell the truth, and observe ... that not only these austerity policies are not working, but they are also unfair, as well as being ineffective.”
Changing France’s fiscal policy will take time, assuming there’s the political will to do so. Meantime, does Montebourg’s exit mark a short-term bottom for France’s fortunes? A number of catalysts may provide some temporary if transitory support for thinking positively.
First, speculation is on the rise that the European Central Bank is close to rolling out yet another round of monetary stimulus to boost Europe’s sagging economic fortunes. Second, France’s economy is showing signs of stability, based on last week’s flash report of Markit’s France Composite Output Index, which inched higher to a neutral 50.0 reading – a four-month high. Third, France’s stock market (CAC-40 Index) has revived a bit this month after a sharp sell-off in July.
Will today’s update on the business climate in France offer another upbeat number? Yes, or so the latest higher run in the CAC-40 suggests. Granted, France continues to face an assortment of macro headwinds, but the immediate question is whether there’s a degree of stability in store for the rest of the year.
Today’s update from the government on the business climate will be closely watched for deciding if the worst has passed. Maybe, although the consensus forecast sees another marginal dip. Economists think the Business Climate Indicator will slip to 96 from last month’s 97. A more or less unchanged reading is a sensible guess based on Markit’s data, although France’s stock market holds out the possibility for something a bit better.
US: Mortgage Applications (11:00 GMT) Three out of four is pretty good. Last week delivered three upbeat reports for the US housing sector – stronger data on confidence in the home-building industry and robust gains for new residential housing construction and existing home sales.
Monday’s soft report on new home sales for July was something of a party spoiler, although the weakness was only visible in the monthly comparison. On a year-on-year basis, sales of newly constructed single-family homes presented a considerably brighter profile: sales rose more than 12% for the year through July – the highest annual rate so far in 2014.
Today’s weekly release on new mortgage applications offers another perspective on the state of US housing. Recent updates for this indicator suggest demand is treading water, with weekly changes over the past two months stuck in a tight range around zero.
The latest run of encouraging data for builder confidence, construction, and sales implies that we’ll also see better figures in today’s release. It doesn’t hurt that mortgage rates have been inching lower this month. Last week the national average for a 30-year-fixed mortgage dipped to 4.1%, the lowest since last October.
Nonetheless, demand for mortgages may not be a timely indicator of housing’s strength these days, as a recent report from Goldman Sachs explained. One reason, according to a summary of the report from Business Insider, is that cash transactions remain relatively popular at a time when securing financing from lenders is still an uphill battle. 