- Germany’s Ifo business climate data is expected to ease in February
- Brazilian stocks have hit record highs, and the real has rallied against the dollar
- Today’s consumer confidence data for Brazil may confirm bullish market sentiment
- US existing home sales should rebound after a sharp setback in December
The February update on business sentiment in Germany will put Europe’s biggest economy back in the spotlight today. Later, consumer confidence in Brazil and existing home sales for the US are on the docket for economic releases.
Germany: Ifo Business Climate Survey (0900 GMT): Economic activity accelerated in February, close to a three-year high, according to yesterday’s update of the Germany Composite PMI. The news suggest that we could see a degree of confirmation in today’s business survey data for this month.
Meantime, IHS Markit advised that the upbeat PMI figures point to stronger GDP growth for Germany in the first quarter. “The latest PMI adds to our expectations that economic growth will strengthen in the first quarter to around 0.6% quarter over quarter, marking a strong start to 2017” by rising over the 0.4% increase in last year’s Q4, a Markit economist noted.
Macro momentum seems to be picking up, but so is political risk. With Euroskeptic political parties polling stronger these days, the potential for turbulence in the wake of upcoming elections could be lurking about. In an unlikely worst-case scenario, analysts are considering the possibility that the European Union will break up if the likes of Marie Le Pen, the far-right front runner in France’s presidential election scheduled for April, emerge victorious in the months ahead.
Politics aside, the numbers to date still point to firmer economic growth in the first quarter. Today’s Ifo report is expected to offer fresh support, although economists see a fractional setback for February. The Ifo’s current conditions index, for instance, is on track to tick lower, dipping to 116.7 from 116.9 in January, according to Econoday.com’s consensus forecast.
That’s hardly a game changer. In fact, given the better-than-expected results in yesterday’s PMI numbers for Europe, it wouldn’t be out of context to see an upside surprise in today’s Ifo release too.
Brazil: Consumer Confidence Index (1000 GMT): The stock market has been trading at record highs recently and the Brazilian real has rallied against the US dollar, appreciating at one point last week to its highest level since mid-2015. The crowd is clearly pricing in an economic recovery. Will today’s February update on consumer confidence keep the party train rolling?
Last month’s release offers some hope that the darker mood at the end of last year was only a temporary setback. FGV’s index of consumer sentiment jumped six points in January to 79.3, effectively reversing the steep December loss for the benchmark.
“The increase in confidence in January is related to the expectations of an improvement in the economic environment, with a drop in inflation and acceleration of the expected reduction of interest rates in the short term,” a spokesperson for FGV explained. “While levels of uncertainty are still high and the outlook for the job market remain poor in the first half of the year, good news at the turn of the year increase the likelihood of a rebound in confidence (or, for now, relief from mistrust) in the coming months.”
A month later, the outlook still looks encouraging, or so a markets-based profile suggests. But some analysts warn that the exuberance in animal spirits has run ahead of reality. The recovery is arguably priced in and so there’s little room for markets to run higher. Maybe, but Templeton’s emerging markets guru investor, Mark Mobius, told the Wall Street Journal earlier this week that he’s been increasing allocations to Brazil on the view that the rebound will strengthen this year (Templeton’s Mobius Foresees Rapid Recovery of Brazilian Economy).
A reality check arrives in today’s update from FGV. If the consumer confidence index can post another increase, the news will reaffirm the bullish outlook that’s been bubbling in Brazil’s equity and currency markets.
US: Existing Home Sales (1500 GMT): The housing market is on track for some upbeat news today, according to economists. After a sharp tumble in sales of existing homes in December, a rebound is projected for today’s January report.
Econoday.com’s consensus forecast sees last month’s total sales jumping to 5.575 million units (seasonally adjusted), which is close to November’s 5.650 million, a post-recession high.
“Higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December,” said the chief economist at the National Association of Realtors, which publishes the numbers. A month later, the US economy’s forward momentum remains intact, suggesting that sales will stabilize if not pick up in January.
That was the message in the last update on the Pending Home Sales Index, a leading indicator for existing sales. PHSI rebounded in December, suggesting that a degree of bullish spillover will lift today’s tally of existing sales for January.
Analysts are on board with that narrative, based on Econoday.com’s consensus forecast for a moderate rise in total sales. Economic activity remains positive, although the potential for another soft patch in the first quarter can’t be ruled out. Yesterday’s preliminary estimate of the US Composite Output Index for February eased to a two-month low.
Is that an early warning sign for the housing market in the months ahead? Maybe, although today’s January data for existing sales is expected to suggest otherwise.
Disclosure: Originally published at Saxo Bank TradingFloor.com