- British retail sales should show a welcome rebound for June
- Rising inflation and slow wage growth is squeezing spending in the UK
- The ECB is expected to keep rates steady in its policy announcement today
- Softer growth is projected for US Philly Fed's manufacturing index in July
A moderately busy day of economic news awaits for Thursday, including the main event: the European Central Bank’s policy announcement and press conference. Other worthy updates to watch include the UK’s monthly report on retail sales for June and the Philadelphia Fed’s regional manufacturing index for July.
UK: Retail Sales (0830 GMT): Concern about weaker growth is expected to ease via today’s monthly update on retail sales.
TradingEconomics.com’s consensus forecast sees spending rebounding by 0.4% in June after a 1.2% slide in the previous month. The bounce is on track to translate to a firmer year-over-year increase of 2.6% following a worrisome dip to a sluggish 0.9% annual rise in May.
The June bounce in the CBI Distributive Trades Index for June also points to firmer batch of hard data for today's spending results. This sentiment benchmark posted a modest increase last after falling to a four-month low previously.
Data published by the British Retail Consortium also anticipates stronger results in today’s official sales data from the government. BRC’s estimate of like-for-like sales advanced 1.2% last month, reversing a 0.5% dip in May.
“Looking ahead, there’s a question mark over whether this spending momentum will last, as household expenditure is increasingly squeezed from rising inflation and slowing wage growth,” said BRC’s chief executive last week. “The reality is that retailers’ efforts in absorbing mounting cost pressures into their margins are already being tested, so the government must have the consumer front of mind as it enters the UK’s trading negotiations with the EU, to avoid any further cost increases to retailers and their customers.”
Eurozone: European Central Bank Announcement (1145 GMT) and Press Conference (1230 GMT): No changes are expected for interest rates in today’s policy update, but the market will be listening closely for clues about how and when the central bank is planning to begin the process of tapering the super-accommodative monetary stance.
ECB officials have be reminding the crowd that any changes will be gradual, and perhaps further off in the future than recent economic data suggests.
“Our mission is not yet accomplished,” ECB chief economist Peter Praet said earlier this month. “We need patience and persistence. We need to be patient, because inflation convergence needs more time to show through convincingly in the data.”
Meanwhile, the economic recovery remains intact, suggesting that the ECB is under pressure to start adopting a slightly more hawkish approach to monetary policy at some point in the near future. The Eurozone Composite PMI in July, for instance, points to another solid quarterly increase for the second-quarter GDP report that’s scheduled for release next month.
“The latest [PMI] readings are indicative of the Eurozone growing by an impressive 0.7% in the second quarter,” advised the chief business economist at IHS Markit a few weeks ago. If the forecast is right, output is set to accelerate for the fourth consecutive quarter and reach the fastest pace in more than two years.
Investors have been repricing the German 10-year yield recently, in part due to expectations that ECB policy will soon start to evolve. Last week the 10-year rate briefly topped 0.6% for the first time since late-2015. It’ll be interesting and perhaps instructive to see how of if the market reacts to today’s policy announcement and press briefing.
Philadelphia Fed Manufacturing Index (1230 GMT): The New York Fed’s index of manufacturing activity in the bank’s region fell more than expected in July. Although it’s still in positive territory, the benchmark’s sharp retreat suggests that the sector for US generally faces stronger headwinds at the start of the third quarter.
Is that just noise? Another guesstimate for July via the Philly Fed’s manufacturing index could provide more clarity. This metric has enjoyed the strongest run over the past year among the five regional Fed data sets that track manufacturing activity. The rebound in this index in last year’s second half offered an early sign that US manufacturing generally was on the mend after a soft patch. Given that history, the market will be eager to see how today’s results stack up.
Economists are expecting that the Philly Fed’s regional benchmark will fall to 22 in July from 27.6 previously, based on Econoday.com’s consensus forecast. That’s still a strong number, however, and the projection puts this index in the lead among its regional counterparts.
The question is whether we see a repeat performance today of weaker-than-expected data visà-vis the previously released report from the New York Fed. If the actual results fall well short of the crowd’s projection, the news will hint at the possibility that the recent rebound in the manufacturing sector is vulnerable in this year’s second half.
Disclosure: Originally published at Saxo Bank TradingFloor.com