Monday’s a relatively quiet day for economic news. The main events for Eurozone data: the October report on industrial production in Germany and the December release of investor confidence via Sentix. Later, the Federal Reserve updates its broad measure of the employment trend for November via its Labor Market Conditions Index.
Germany: Industrial Production (0700 GMT) Europe’s biggest economy keeps humming along. Despite renewed worries about the broad trend for Europe overall, Germany remains a study in macro resilience, as last week’s upbeat numbers on employment and factory orders suggest.
The unemployment data beat expectations in November and inched down to a post-reunification low of 6.3%. Meanwhile, factory orders in October rose slightly more than expected, advancing 1.8% against the previous month. News of the jump in orders “confirms our view that Germany's economy remains in a robust recovery,” an economist at Unicredit told Reuters on Friday.
The official outlook for the macro trend also earned a new vote of support last week. The German central bank advised that it upgraded its economic outlook for the country, projecting that real gross domestic product will increase 1.7% this year, inching higher to a 1.8% gain in 2016. "The German economy is currently following a growth path that is primarily underpinned by domestic demand,” the Bundesbank said in a statement. Exports are a bit wobbly these days, but a degree of firming is expected next year.
Will the positive run of numbers continue with today’s news on industrial output for October? Yes, according to a number of economists, who see production in October rebounding moderately after September’s 1.1% slide.
Sentiment data for the manufacturing sector lends support for thinking positively. The purchasing managers’ index in this corner has been holding at modestly higher levels in recent months through November versus the first half of the year. “It is especially encouraging to see that new export business rose at the strongest rate in 21 months, despite the growth slowdowns seen in many emerging markets,” a Markit economist said last week with the release of PMI numbers for November.
Eurozone: Sentix Investor Confidence (0930 GMT) The crowd was underwhelmed with the details of last week’s announcement of a stimulus boost from the European Central Bank. The market was looking for something bigger than extending quantitative easing by six months at the current rate of €60 billion a month. In response, European stocks tumbled and the euro posted a sharp gain against the US dollar, pushing the EUR/USD up to the 1.095 range immediately following the announcement—the highest since early November.
A stronger euro creates additional headwinds for the Eurozone because it weakens the competitive profile of the currency bloc’s exports. But with the Federal Reserve still on track to tighten policy in the US later this month, the euro may end up falling in the weeks ahead regardless of the latest ECB decision. Hinting at the possibility, the EUR/USD pulled back a bit on Friday after surging the day before.
The critical factor, of course, is the broad macro trend. Although Eurozone growth has softened lately, there are hints of a firmer trend in the next round of updates. The fourth-quarter estimate for quarter-over-quarter GDP growth in the euro area ticked higher to 0.24% in last week’s update from Now-casting.com. That’s still a weak pace, but at least it’s a step up from the previous week’s sliding projection. Nonetheless, Eurozone GDP growth at 0.24% ranks as the slowest pace since Q2, 2014.
By contrast, recent sentiment data points to a mildly stronger trend. Markit’s Composite PMI for the Eurozone ticked up in November. “With the November PMI data we now have a reliable indication of fourth quarter economic growth, and the upturn in the PMI points to euro area GDP expanding by 0.4% on a quarterly basis,” said Markit’s chief economist last week.
Deciding if that’s still a reasonable view remains a work in progress. Today’s update on investor sentiment via Sentix will provide a new round of data how the trend is faring as 2015 winds to a close. The Sentix Investor Confidence Index inched higher in November, posting its first monthly increase since July. It’ll be useful to see if today’s reading for this month can hold on to the gain, especially in the wake of last week’s market reaction to the ECB's softer-than-expected stimulus news.
US: Labour Market Conditions Index (1500 GMT) Last week’s encouraging report on payrolls for November gives the Federal Reserve the all-clear sign to start raising interest rates later this month. Manufacturing is still weak, but that looks like an outlier that's unlikely to stay the Fed's hand this month.
Nonfarm payrolls rose 211,000 in November, modestly beating expectations. Although that’s well below October’s increase, it’s still a solid gain. “We cleared the last hurdle for a rate increase, the president at EverBank World Markets told Reuters on Friday. “The Fed was looking for some positive movement on wages, and we got a little bit of that. There is absolutely nothing in this report that will keep the Fed from raising rates.”
Today’s update of the multi-factor Labour Market Conditions Index will offer additional context for evaluating the employment trend. It’s likely that we’ll see improvement in this broadly defined benchmark that’s published by the Fed.
LMCI’s recent updates already reflect a stable run of moderate growth. For the six months through October, the index remained in positive territory in the 1.0-to-2.0 range. That’s a relatively sluggish pace, but the fact that it’s been consistently positive is encouraging. Considering the latest payrolls update, it’s reasonable to anticipate that we’ll see some strengthening in today’s employment profile for November. In that case, the odds will tick higher still that the Fed will outline a small rate hike in its policy announcement on December 16.
In fact, that’s what economists expect. Econoday.com’s consensus forecast calls for a slight increase in LMCI to 1.7 from 1.6. But considering that last week’s gain in payrolls beat expectations by a solid margin, perhaps today’s update will do the same.
Disclosure: Originally published at Saxo Bank TradingFloor.com