ECB Report, US Jobless And Consumer Comfort

Today’s release of the European Central Bank's (ECB) monthly report may shed light on whether the central banking will push further for euro devaluation as a tool for boosting exports in the months ahead. Meanwhile, jobless claims and the latest weekly release of the Bloomberg consumer comfort index are the main events in US economic news (along with an 12:30 GMT release of import/export prices).

European Central Bank Monthly Report (08:00 GMT); Few analysts think the ECB will make any dramatic changes at the next scheduled monetary policy announcement on August 1. But a lot will happen between now and then, including several weeks of economic updates. Meantime, today’s monthly report is, as always, worth a look for evaluating the state of mind, so to speak, for the institution that remains the last, best hope for shaking the Eurozone out of its recession sooner rather than later.

One topic that I’ll be reviewing for clues on ECB policy is bound up with exports. In the lead editorial in the June report (pdf), the bank again referenced the potential for export growth as a supporting pillar for recovery in this year’s second half and beyond. That’s an increasingly topical issue at the moment with the euro weakening against the US dollar. EURUSD is currently hovering around the 1.28 range, or roughly the low so far for the year. Exports, of course, are central to Germany’s economy, which in turn is the foundation for any talk of expansion in Europe at the moment. Given the relatively encouraging results with “Abenomics” in Japan, which includes juicing exports via a weaker yen, it’s not hard to imagine that the ECB is quietly following suit while Europe’s recession drags on.

It doesn’t take a genius to realize that Europe needs a weaker currency. Economic fundamentals certainly warrant no less. Comparing the Eurozone to the US, or even Japan these days, tells the story. The ECB isn’t likely to come out and blatantly announce that it’s pursuing a lower euro. That said, it would be foolish to let the current opportunity slip by. With downside momentum in EURUSD front and center, the time is ripe to stoke the fires of the decline. Yes, a weaker euro would raise inflation, but that’s a positive at this stage for the Continent because any fallout would be more than offset by export-led growth.
Germany begs to differ, of course, despite the role that exports play in its economy. Nonetheless, Europe's macro leader is probably why the ECB isn’t taking a more aggressive line in stimulating animal spirits through monetary policy.
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US Jobless Claims (12:30 GMT): Analysts are looking for a modest dip in today’s update on new filings for unemployment benefits. That's a reasonable forecast, given that private-sector payrolls continued to rise at a moderate pace in June.

The recent trend in jobless claims also implies more of the same for the immediate future. Although the declines of late have slowed, the four-week average continues to drift with a downside bias. That’s an encouraging sign for thinking that the economy remains on a slow-but-steady course of expansion. An even stronger signal is the fact that claims are still falling by a healthy rate on a year-over-year basis, a comparison that cuts out a lot of the weekly noise. In last week’s report, new filings dropped roughly eight percent vs. the year-earlier figure on a seasonally adjusted basis. That’s more or less the average pace of descent for 2013 so far. If and when the annual comparisons are rising, we’ll have a dark signal for the economic outlook. By that standard, however, we’re nowhere near the danger zone, and today’s update isn’t likely to tell us differently.

US Bloomberg Consumer Comfort Index (13:45 GMT): This weekly benchmark of consumer sentiment doesn’t usually attract a lot of attention, but today’s update may draw a larger crowd. In last week’s release, the index increased to a five-year high. Another rise would be an even stronger clue for thinking that retail spending will remain buoyant in the months ahead. If so, that’s a big positive for the US economy, which relies heavily on consumers to fuel growth.

Support for thinking positively arrived in Tuesday’s strong gain in the ICSC-Goldman Store Sales Index for the week ended July 6. "Possibly due to when the Independence Day holiday fell this year (on Thursday), and the likelihood that more Americans celebrated with an extended four-day holiday weekend, strong business was seen across most retail categories,” says ICSC chief economist Michael Niemira in a press release. “In addition, summer clearance aided in the strong finish to the June fiscal month.” If today’s consumer comfort index posts another gain, it’ll be easier to argue that there’s more than a holiday quirk behind last week’s robust spending spree.