Ahead Of Tuesday's Data

Tuesday is loaded with economic news, starting with updates on Germany's retail sales and unemployment, which will attract the lion's share of attention today. Later, new monthly real estate data for the U.S. arrives via the S&P Case-Shiller Home Price Index. Several other releases deserve careful review as well today, including UK money supply data (08:30 GMT), euro-zone unemployment (09:00 GMT) and the Conference Board’s estimate of U.S. consumer confidence (14:00 GMT).

Germany Retail Sales (06:00 GMT): The mood in April across the Eurozone stumbled more than expected in yesterday’s update of the Economic Sentiment Indicator (ESI) from the European Commission (pdf). That news will focus the market’s intention more intensely on today’s retail sales report for Germany. The outlook for Europe’s leading economy has turned weaker in recent weeks, as the latest ESI numbers remind us. Indeed, yesterday's sentiment survey shows that the overall mood in Germany dropped last month to the lowest level so far this year, echoing the trend for the Eurozone overall.

Today’s retail sales data lags by a month, with March numbers scheduled for release today. Nonetheless, a weak report will only fuel speculation that the last line of macro defense for the continent is giving way to the darker angels of Europe’s ills. The lesser pace of consumer inflation in April in Germany is yet another signal that the country’s economic growth may be at risk in the months ahead. CPI fell 0.5 percent in April, more than expected -- not a particularly helpful bit of news at this point. Is this a warning of deeper trouble in the next round of updates? The case for answering “yes” will resonate a bit deeper if today’s retail sales release delivers gloomy news. Analysts are prepared for trouble, however, with a number of economists expecting that February’s sluggish 0.4 percent rise will slide a bit further to something approximating no change.

Depending on what we see today, along with the unemployment update for Germany that follows (see below), the pressure will rise on the European Central Bank to announce a rate cut at its scheduled monetary policy announcement on Thursday.

Germany Unemployment (07:55 GMT): The April labour market update for Germany will probably be today’s main data event, and for good reason. If economic momentum is truly slowing in the heart of the Eurozone, the crucial clue will be found in the job market. Even if the official jobless rate remains unchanged (it’s been 6.8 percent to 6.9 percent for more than a year), a jump of any degree in the number of unemployed persons would be particularly discouraging at this stage.

Note that the absolute monthly change in the unemployed population has been biased to the upside for much of the past year, albeit modestly. That’s a sharp change from 2010 and 20111 when monthly declines were routine. Another modest increase in today’s unemployed total wouldn’t change much. By contrast, any increase that approaches the recent high-water monthly mark of plus 18,000 would a signal that the recent weakness reflected in other economic reports has migrated to the labour market. In that case, this would be a number that could very well seal the deal for expecting a rate cut announcement from the ECB on Thursday.

U.S. S&P Case-Shiller Home Price Index (13:00 GMT): The real estate recovery alone may not be enough to keep the U.S. economy on a path of modest growth. But any headwinds that threaten the expansion are considerably stronger, and probably doomed, without the ongoing critical support from the revival in the housing market. All the more reason to watch today’s update on home prices.

Recent data shows that price momentum has been reliably positive for some time and analysts think that today’s report for February will deliver comparable news. The consensus forecast calls for a one percent rise, which would match January’s gain. Another healthy rise in prices would, of course, be good news. Then again, a strong report on the housing market for February isn’t all that helpful at this stage, when the debate has turned to evaluating the implications of the weak March economic data. By contrast, it’s been clear for some time that macro momentum was relatively strong for January and February. Today’s home price data is likely to confirm that view, in which case a brief round of celebration is in order. But then it’s back to monitoring the incoming April data, which begins in earnest with tomorrow’s update on the ISM Manufacturing Index.