The key event for European economic news today is Germany’s monthly update on industrial production, which follows last week’s better-than-expected monthly gain in factory orders. Later, Sentix publishes a new estimate of investor sentiment for Europe, followed by the Federal Reserve’s monthly release of its Labor Market Conditions Index for the US.
Germany: Industrial Production (06:00 GMT): April was a strong month for factory orders, the Economics Ministry reported last week. The surprisingly strong 1.4% gain vs. the previous month suggests that today’s number for industrial production will follow suit. The Ministry suggested as much in a statement on Friday, advising that “German industry looks bound to experience a boost.”
Maybe, but business sentiment in the manufacturing sector suggests that today’s numbers may not impress the crowd on par with factory orders. Markit’s purchasing managers' index for manufacturers dipped to a three-month low in May, which follows April’s mild decline. The PMI is still signalling a modest degree of growth, but companies noted a further slowing of new order growth last month, Markit reported.
The hard numbers on factory orders for April paint a brighter profile, which raises the question of which data set’s misleading us about the trend? Economists are voting on the side of optimism. Today’s monthly release on industrial activity is on track to post a solid rebound in April vs. March’s retreat, according to Econoday.com’s consensus forecast. The crowd’s looking for a 0.6% monthly advance in output and a modest 0.8% rise for the year-over-year change.
Thinking positively aligns with the latest outlook from the Bundesbank, which raised its economic forecast. The central bank expects Germany’s GDP will grow 1.7% this year, modestly higher than the previous 1.4% estimate. “These are the first signs that the improvement in business sentiment in the Eurozone translated into higher demand and arrived in Germany,” a Frankfurt-based economist at UniCredit told Bloomberg on Friday.
The question is whether today's numbers for industrial production agree?
Eurozone: Sentix Investor Sentiment (08:30 GMT): Speaking of sentiment, today’s numbers from Sentix offer a fresh look at the mood in the investment community. One clue for thinking that we’ll see a slightly softer number is the recent weakness in the German stock market, which continues to trend lower after its mid-April peak.
The Eurozone recovery is still intact, but the drama that accompanied the initial revival in recent months has faded a bit. Now-casting.com’s current estimate for second-quarter GDP still projects a 0.5% quarter-over-quarter rise, which represents a slight improvement over Q1’s 0.4% advance. But Grexit risk is still lurking.
Meanwhile, the initial phase of euphoria that greeted the early days of renewed optimism that Europe was recovering has passed. The focus now turns to the hard work of building on the limited progress to date.
The ongoing uncertainty bound up with Greece continues to weigh on the Eurozone. Last week the Greek government announced a delay on the repayment of an IMF loan and the deputy prime minister raised the possibility of new elections. It’s just another chapter in the ongoing soap opera, but it’s enough to keep the crowd guessing. In any case, it’s not helping boost confidence that Europe’s fragile recovery is about to accelerate.
Given this backdrop, a degree of backsliding in Sentix’s sentiment index shouldn’t come as a surprise. The currency bloc’s recovery will likely prevail, but for now it’s still shaping up to be a sluggish rebound with no shortage of bumps along the way.
US: Labor Market Conditions Index (14:00 GMT) Payrolls rose more than expected in Friday’s surprisingly strong payrolls report for May. The crowd was looking for a gain of 220,000 and instead the government advised that jobs increased by a much-stronger 280,000 last month.
The news was interpreted by the Treasury market that the Federal Reserve would likely begin raising interest rates, perhaps as early as September. In the wake of the bullish report, the benchmark 10-year Treasury yield topped 2.40% on Friday for the first time since last October.
The upbeat numbers on jobs for May “certainly brings a September rate increase into much clearer focus”, observed Carl Tannenbaum, chief economist at Northern Trust (NASDAQ:NTRS) in Chicago.
Today’s monthly release of the Fed’s Labor Market Conditions Index will be a relatively sleepy affair by comparison, but this broad measure of 19 indicators is on track to deepen the case for anticipating a stronger run of economic growth.
Econoday.com's consensus forecast calls for a rise to 2.3, the first positive reading since February. That's not particularly surprising at this point, but the news will provide more evidence that the US economy may be stronger than previously assumed.
Disclosure: Originally published at Saxo Bank TradingFloor.com