Confusion over how the end game for the Greek crisis plays out will continue to weigh on sentiment today. Meanwhile, the Bank of England will issue a new policy announcement, followed by a couple of US numbers that will offer early clues on the macro trend in July.
UK: Bank of England Announcement (11:00 GMT): Economic growth in Britain is weakening, according to yesterday’s monthly update of the OECD’s leading indexes for the world’s major economies. But if the UK’s trend is sliding, it’s not obvious in this week’s new estimate of GDP via the National Institute of Economic and Social Research (NIESR).
In fact, the pace of growth picked up for the three months through June, NIESR advised. UK output expanded by 0.7% – the strongest pace since January. “This implies that the economy has expanded by 2.7% in the last 12 months,” the group noted. “We expect the Bank of England to begin increasing bank rate in early 2016, most likely coinciding with the February inflation report.”
Survey data, however, reflects a mixed profile. The growth rate for manufacturing in June slipped to a 26-month low, according to Markit’s purchasing managers’ index (PMI). By contrast, Britain’s services sector continues to post strong PMI numbers.
“The [services] survey data are indicating an acceleration of economic growth to 0.5% in the second quarter, up from 0.4% in the first three months of the year,” Markit’s chief economist said last week. “However, growth will have to accelerate further in the second half of the year to meet the bank’s 2015 growth forecasts of 2.5%, and faster growth is by no means assured.”
The question, of course, is how the central bank’s take on all of this compares. Policymakers remain keenly aware that raising rates too early could derail growth. All the more so with the crisis in Greece still bubbling just over the Channel.
Britain’s growth will likely endure for the near term, but for the moment the odds are low that the central bank will emphasise the prospects for tightening monetary policy. There's enough forward momentum to keep the central bank poised to raise rates in the not-so-distant future.
The problem is that there's always a new reason to hold off pulling the trigger for just a while longer. Among the current excuses is Greece, and it's not obvious this fly in the monetary ointment is going to fade away quietly any time soon.
US: Jobless Claims (12:30 GMT): Economic worries have picked up over the past week, but the macro bears probably won’t find much to chew on in today’s weekly report on new unemployment fillings. This leading indicator has remained below the 300,000 mark since March and that’s not going to change with the update for July's first read.
Econoday.com’s consensus forecast sees claims for last week ticking down to a seasonally adjusted 276,000 vs. 281,000 in the previous update. Thanks to the July 4 holiday in the US, today’s numbers may be slightly skewed to the downside. In any case, the trend still looks favourable, offering support for anticipating that payrolls will continue to rise at a healthy pace.
That’s also the message in the May report for job openings, which reached a new record-setting high for the second month in a row. “Job openings rose over the year for many industries,” the Labor Department advised. The news follows last week’s June release on payrolls, which increased by a solid 223,000.
Today’s claims data may not be terribly relevant for analysing the trend, thanks to the holiday factor in today’s data. Regardless, the update is the last major economic release for the US until next Tuesday’s retail sales report. Based on the crowd’s expectations, we’re likely to go into a quiet period for scheduled reports on an upbeat note.
US: Consumer Comfort Index (13:45 GMT): The mood on Main Street is brightening, according to Bloomberg’s sentiment measure. After falling for two months, this weekly metric has been in rebound mode during June.
“Its recent track has correlated very closely with gasoline prices, now easing after a sharp springtime run-up,” said the president of Langer Research Associates, which oversees the index for Bloomberg.
Will the upbeat trend continue? One bullish clue is the positive data in the University of Michigan’s widely followed benchmark of consumer sentiment. The index rose to a five-month high in June, in part due to an expanding labour market.
“Consumers are feeling confident about their job and income prospects,” noted David Berson, chief economist at Nationwide Insurance. “Consumer spending is going to look pretty good in the second quarter.”
But the early figures for July suggest that June’s glow may fade a bit. A sentiment metric published by Reuters dipped to the lowest level this year this month while Gallup’s estimate of consumer confidence eased to a seven-month low in the June reading.
Considering the mixed messages in the latest clues, the recent winning streak for the Consumer Comfort Index may be set to stumble or at least pause. That wouldn’t be a tragedy, although a weak reading will remind the crowd that the US economy is still struggling to recover from the winter slowdown.
Disclosure: Originally published at Saxo Bank TradingFloor.com