Monday’s a slow news day for macro and so the January report on Germany’s Ifo Business Climate Index may have a larger-than-usual influence on the trading day ahead. Later, we’ll see Markit’s flash estimate for the US Services Purchasing Managers Index (PMI), followed by an update on new sales of single-family homes in the US.
Germany Ifo Business Climate Index (09:00 GMT) Recent survey data for the state of macro in Germany looks encouraging. It’s not been particularly strong, but it’s firm enough to suggest that Europe’s main economy will continue to grow at a moderate rate. Last week’s ZEW survey of economic expectations among investors in January, for instance, inched lower but remained close to a multi-year high. Meanwhile, the crowd dramatically raised its assessment of current conditions — the so-called economic situation sub-category in the ZEW data jumped to its highest reading since the spring of 2012. We also learned last week that Markit’s flash estimate of the January composite PMI for Germany jumped to a two-and-a-half-year high. “Germany’s private sector continued to hit high notes at the start of 2014,” advised a Markit economist who oversees the data.
The upbeat numbers suggest that today’s Ifo news will look good too, although an upside surprise wouldn’t hurt. The Ifo sentiment data on the current situation has been a touch sluggish in recent months, although the expectations component has been climbing rather convincingly. As a result, the widely followed composite measure — the Business Climate Index — touched an 18-month high last month. Analysts think more improvement is on tap for today’s release for all three benchmarks. One reason for thinking positively is the latest uptick in the Belgian business sentiment. Why’s that relevant? Reuters explains: “Belgium, the Eurozone's sixth-biggest economy and one of its most open, exports a large number of semi-finished goods to the region's most powerful economy, Germany, which has been more resilient than most of the rest of Europe.”
US Services PMI (13:58 GMT) Markit Economics recently launched a services PMI survey for the US and the data is worthy of close attention for deeper perspective on reading the widely followed ISM Non-Manufacturing (Services) Index. One benefit is the early arrival of the data. As usual with the PMI reports, we’ll see flash estimates well ahead of the ISM releases and so today’s number can be used as a rough approximation for the ISM non-manufacturing index for January report that will hit the streets on February 5.
The current numbers for the services sector, for both the ISM and PMI series, indicate growth, albeit at a slightly slower pace lately. The trend in manufacturing, by comparison, has been a bit firmer. This all matters, of course, because the services sector accounts for a far greater share of jobs vs. manufacturing. Is there cause for concern? No, not at this point because the services data remains well above 50. As Markit noted earlier this month for its newly minted index, “activity at service providers in the US continued to rise at a solid pace in December.”
US New Home Sales (15:00 GMT) December existing home sales bounced back a bit, suggesting that the real estate recovery is still intact. It may be a bit wobbly, though, which isn’t a surprise given the recent rise in interest rates. Some analysts have feared the worst, warning that a sharp correction is now possible. Maybe, but there was no sign of deep trouble in the December existing home sales data. “We lost some momentum toward the end of 2013 from disappointing job growth and limited inventory,” said the chief economist at the National Association of Realtors, which publishes the report. “But we ended with a year that was close to normal given the size of our population.”
New home sales are a fraction of existing transactions, but today’s update will still provide valuable context for deciding how to read the demand for housing at the end of 2013. In the November report, sales of new single-family homes retreated 2 percent vs. the previous month — the first monthly downturn since July. But the mild setback comes after a dramatic surge in new sales in October. As a result, there’s scope for another minor decrease in sales while continuing to expect modest growth generally for housing in the new year.