FR Business Climate, UK jobs, US House Starts

A busy day of news and data ahead, including the release of minutes from the BoE and the Federal Reserve’s FOMC. Germany also updates consumer price inflation today. I’ll be keeping a close eye on three other numbers as well: the business climate indicator for France, the UK labour market report and US housing starts for January.

France Business Climate Indicator (07:45 GMT)
Macro confidence for Germany increased substantially this month, according to yesterday’s release of the ZEW Indicator of Economic Sentiment. The upbeat news softens some of last week’s worse-than-expected decline in fourth-quarter GDP for Germany and Europe. Optimists say that this year’s first quarter will deliver better news. There have been some encouraging numbers in recent weeks, including the latest ZEW update. But is there any reason to think that macro conditions for Europe overall are stabilizing in Q1? Today’s release of the business climate indicator (BCI) for France may offer a clue.

France continues to face a range of economic challenges, but the immediate question is whether the overall trend for the eurozone’s second-largest economy is worsening. Much depends on the choice of indicators. But no matter the answer, the front line for looking ahead includes surveys of business leaders from various sectors, such as France’s BCI. In the January update, this index stabilized at 87. That is well below its long term average of 100, but it is also roughly unchanged from the previous month. Analysts don’t see much more than a marginal increase in today’s number. That, at least, will keep hope alive that France’s economy may be able to tread water for the near term. If so, improving economic conditions in Germany in the months ahead will resonate a bit deeper in the cause of seeing the macro glass as half full in Europe for 2013.

UK Labour Market Report (09:30 GMT)
The British pound has lost ground against the euro in recent months, but some analysts think that the EUR/GBP rally has run out of steam. That’s certainly the case based on trading activity so far in February, with the EUR/GBP pair fluctuating within a relatively narrow range of roughly 84.5 to 87.0. If the case for a stronger pound relies on bullish news from Britain, today’s update on the labor market may help launch an attitude adjustment.

One number to watch is the claimant count, which has been trending down in recent months. The number of people claiming unemployment benefits dropped to its lowest level in over a year in December. The British economy still faces a number of substantial headwinds, but a falling number of workers filing for jobless benefits is an encouraging sign for the near-term outlook. The consensus forecast sees another dip in today’s release for January, albeit a modest one. If the number ends up as a bigger-than-expected fall, however, the forex market may be inclined to reassess the prospects for the British economy in the year ahead relative to the eurozone.

US Housing Starts (13:30 GMT)
Home building had a good run last year. But the positive momentum is expected to take a break in today’s January update. The market is looking for a roughly 4 percent rise in new starts last month versus December’s torrid 12 percent gain. My econometric modeling suggests a smaller loss, but everyone’s generally in agreement: today’s report will deliver red ink.

December’s rate of growth is unsustainable, of course, but a setback will still make the bulls nervous. Housing, after all, has been a critical source of support for the economy over the past year and any sign that the rebound is faltering isn’t easily ignored in an otherwise slow-growing economic climate. But one month a trend does not make. Housing starts are volatile in the short run, and so it will take time to decide if the housing revival has run into a new snag, or not.

Keep your eye on how the actual figure compares with the forecasts, which may tell us something about the trend. In addition, watch the spread between starts and newly issued building permits. The two ultimately track one another closely. The fact that starts got ahead of permits last month suggests that a pullback is due for January.