The potential for a solution to the Greek crisis was bubbling at the end of the trading day for Europe on Monday, courtesy of a new offer from the government in Athens. Concrete results have yet to be hammered out as this post goes to press.
But with the prospects looking a bit brighter for at least kicking the problem down the road —again — there’s a stronger possibility that a Grexit can be avoided. In any case, today’s numbers will continue to take a back seat to the headlines linked to Greece.
Influential or not, the flash data on sentiment numbers for the Eurozone’s manufacturing and services sectors in June are on tap, followed by US reports on durable goods orders and the first look at this month’s manufacturing PMI.
Eurozone: PMIs (08:00 GMT): Political negotiations with Greece will continue to overshadow economic data this week when it comes to analysing Europe’s macro outlook. The conventional is on hold until this mess is sorted out, or at least some progress appears.
In the meantime, today’s initial look at sentiment for the currency union overall will shed some light on what to expect, assuming that the crisis in Greece is resolved one way or another without too much blow-back.
For the moment, the numbers continue to look encouraging, albeit with the standard footnote, aka Greece. But putting aside the elephant in the room, Markit’s purchasing managers’ indices (PMIs) for the services and manufacturing sectors reflect an ongoing recovery through May. In both cases, the relevant PMI equates with growth and at a rate that’s close to the best levels for the past year.
The upbeat outlook embedded in the recent PMI numbers finds support from other sources. For instance, the Bank of Italy’s Euro-coin index, which serves as a proxy for Eurozone growth, remained at an 11-month high in May, which equates with roughly a 0.4% quarter-over-quarter rise in GDP — unchanged from the first quarter.
Today’s flash PMI data for June is expected to stick close to last month’s figures. Econoday.com’s consensus forecasts call for a fractional gain for manufacturing to 52.4 from 52.3 in May; the services PMI is projected to remain unchanged at 53.8.
In short, a new round of encouraging numbers are expected. The question is whether there’s a joker in the deck?
US: Durable Goods Orders (12:30 GMT): Yesterday’s update of the Chicago Fed National Activity Index (CFNAI) still points to growth for the US economy. The expansion is below trend, according to CFNAI’s three-month average, but recession risk remains a low-probability event as of last month.
“Two of the four broad categories of indicators that make up the index increased from April,” the Chicago Fed noted, “but only the employment, unemployment, and hours category made a positive contribution to the index in May.”
Nothing terribly surprising here at this stage, but what of the summer? A new downturn is unlikely at the moment, but that’s a separate issue for anticipating the pace of growth. The upbeat numbers on payrolls are still Exhibit A for a bullish outlook. Last week’s surprisingly sharp drop in initial jobless claims left new filings close to a 15-year low — a signal for anticipating that the labour market will continue to grow at a robust pace.
Is that enough to pull up the rest of the economy? In time, yes, assuming payrolls maintain their recent advance rate of 200,000-plus new jobs a month. As for the here and now, it’s not obvious that a strong snap-back is underway.
One of the weights on the macro outlook these days is manufacturing, which has suffered recently due to a strong dollar and a dramatic reversal of fortunes in energy-related industries. That’s not fatal for the big-picture outlook, but it’s helping to keep a lid on growth overall.
The burden is expected to reveal itself anew in today’s numbers for new durable-goods orders. Briefing.com’s consensus forecast projects a 0.5% monthly decline for May — a moderately deeper shade of red compared with April’s 0.1% slide. The forecast translates into a 0.7% year-over-year decline. It all adds up to another batch of weak numbers that imply that manufacturing didn’t make much progress last month in rebounding after a rough patch in early 2015.
Does the future look any brighter? The flash estimate of Markit’s manufacturing PMI release for June, which follows the durable goods report, offers a clue.
US: Manufacturing PMI (13:45 GMT): A touch of relief is expected for America’s bruised manufacturing sector. Markit’s preliminary estimate of its PMI data for this corner of the economy is on track for a fractional gain to 54.2 for June, according to Econoday.com’s consensus forecast. That’s a marginal improvement over May’s 53.8 reading. Growth, in sum, will likely endure but remain moderate.
If confirmed, today’s forecast will serve as a reminder that manufacturing will plod along at a relatively sluggish rate while hinting at better things to come. Indeed, if today’s forecast holds up, we’ll have a bit more confidence for thinking that the soft patch has passed (or at least isn't getting any worse).
As long as the rest of the economy dispenses upbeat figures, the outlook for manufacturing will remain modestly upbeat. Yesterday’s release on existing home sales, for instance, posted a sharply stronger-than-expected gain in May, rising to a five and a half year high in the wake of firmer demand from first-time buyers.
The news “suggests that the US housing market recovery is back on track after the missteps earlier this year,” Millan Mulraine, deputy chief economist at TD Securities, told Reuters. “We expect this upbeat tone in the housing recovery to continue as the favourable domestic fundamentals begin to reassert themselves."
Those fundamentals will be slow to emerge in manufacturing. But if upbeat numbers in other key facets of the economy roll on, the sight of manufacturing maintaining a steady if modest pace of growth implies that this part of the macro profile isn’t likely to stumble in the second half of the year.
Disclosure: Originally published at Saxo Bank TradingFloor.com