Tuesday’s another slow day for economic releases, although the market will be interested in today’s update on credit conditions in the Eurozone ahead of Thursday’s policy announcement from the European Central Bank. Later, two reports for the US will attract close attention: the monthly release on housing starts and Redbook’s weekly measure of 256 at national chain stores.
European Central Bank Lending Survey (0800 GMT) Today’s update on credit standards in the Eurozone will provide a useful clue for Thursday’s policy announcement from the ECB. In the wake of recent data that implies that the currency area’s modest recovery is slowing, the crowd will focus on the central bank’s data for insight for deciding if the case is growing for more monetary easing.
ECB policymaker Ewald Nowotny suggested as much last week, when he said that additional monetary stimulus measures may be needed. He repeated the point in an interview with Polish media yesterday, noting that looser fiscal policy may be necessary as well. “For a considerable time [fiscal policy] was restrictive. Now it could be described as neutral, but there may be a need for it to become expansive," he observed.
Meanwhile, the heads of Europe’s largest lenders, including Deutsche Bank (DE:DBKGn) and BNP Paribas (PA:BNPP), are complaining that tighter regulations could reduce lending, according a report by the FT earlier this month.
All this will be on the minds of traders with the release of today’s lending survey from the ECB, which is expected to show that credit standards continued to ease for the three months through September. In the previous report, banks reported that credit standards were easier for loans to enterprises and consumers. The percentage of banks reporting tighter standards in Q2 for enterprise loans, for instance, dipped 3%, following a 10% drop in Q1.
In the current climate, amid new worries about growth, it would be worrisome if today’s survey data doesn’t show another round of easier lending standards. In that case, pressure will rise for the ECB to react.
The EY’s autumn forecast, however, indicates that securing loans will be easier going forward. After four years of contracting, the group projects that corporate lending in the Eurozone is on a sustained rebound, on track to rise 3.8% in 2016. The markets will be looking for some supporting evidence in today’s ECB report.
US: Housing Starts (1230 GMT) The home building industry is becoming increasingly optimistic, based on yesterday’s survey data for October. The National Association of Home Builders reported that its Housing Market Index, which measures the mood in the industry, jumped to 64 this month—a 10-year high.
“The fact that builder confidence has held in the 60s since June is proof that the single-family housing market is making lasting gains as more serious buyers come forward,” said NAHB’s chairman in a statement yesterday. The group’s chief economist added that “with firm job creation, economic growth and the release of pent-up demand, we expect housing to keep moving forward as we start to close out 2015.”
The upbeat mood implies that today’s monthly release on residential housing construction will strengthen after easing in the past two releases. Yet economists are expecting only a mildly stronger pace for housing starts in September. Econoday.com’s consensus forecast sees new construction rising to 1.147 million units (seasonally adjusted annual rate), which is a middling number relative to recent history.
If the crowd’s outlook is accurate, today’s report probably won’t create new pressure for the Fed to start raising interest rates. By contrast, a surprisingly sharp increase in the September level of starts could signal that the central bank might start squeezing monetary policy earlier than widely assumed. That may be an unlikely scenario at this point, but yesterday’s bullish release from the NAHB suggests that the possibility of stronger data for construction activity isn’t beyond the pale.
US: Redbook Sales Index (1255 GMT) Last week’s report on retail spending in the US for September was disappointing, but the sluggish growth in the headline reading may be temporarily wobbly due to weak energy prices. After stripping out spending at the pump, the dollar value of retail sales on an annual basis increased 4.9% through September, a modestly stronger pace compared with August’s 4.3% gain.
Consumer spending remains muted compared with last year, but it’s still debatable if there’s trouble brewing in this critical corner of the US economy.
“Consumption has been a strong pillar of growth over the summer, but this pillar is probably more fragile than previously expected,” noted Thomas Costerg, a senior US economist at Standard Chartered (L:STAN) Bank, last week. “Consumers would like to see more wage growth before spending a bit more freely.”
We’ll have more insight on wages when the Labor Department publishes new data early next month on the state of employment in October. Meantime, today’s weekly release from Redbook will offer more colour on how retail spending is shaping up this month. Based on last week’s data, sales at national chain stores are stable to slightly stronger, rising 1.1% vs. the year earlier level. That’s relatively soft vs. the growth rates posted in the summer, although the fact that spending has been stable lately is a mildly encouraging sign. That will be all the more so if today’s update is able to hold steady or post a faster rate of growth vs. the previous week’s report.
Disclosure: Originally published at Saxo Bank TradingFloor.com