Germany Trade Balance (06:00 GMT): The Russia-Ukraine crisis has been a relatively orderly affair so far, notwithstanding the former's annexation of Crimea. But it’s too early to dismiss this evolving and unstable situation for sizing up the macro outlook in Europe. As Destatis reported last week, “Russia is undoubtedly a major trading partner of Germany”. About one in 10 exporters in the Eurozone’s largest economy claim Russia as a customer, and for roughly three quarters of these companies the sale of goods to its eastern neighbour account for 25 percent of their total exports. The question is whether the recent geopolitical turbulence has had any obvious effects on Germany’s exporting machine?
Today’s February report on Germany’s trade figures won’t tell us much about any blowback from the crisis—that will have to wait for future updates, which will fully reflect any repercussions. But today’s numbers will show how much exporting momentum Germany enjoyed on the eve of Russia’s Crimea invasion. In the January update, exports increased by a strong two percent. But imports jumped even more, resulting in a narrowing of the overall trade surplus to EUR 17.2 billion. Several economists project that exports will rise again in today’s report, and at a faster rate than imports. In turn, Germany’s trade surplus is expected to turn higher. On the surface, that’s good news for Europe’s leading exporter. But the encouraging news for Germany will be under a cloud of uncertainty about how the Russia factor will influence trade in the months ahead.
US MBA Mortgage Applications (11:00 GMT): Judging by the upward momentum in value of homes, the real estate recovery in the US continues to roll along. Prices jumped 12.2 percent in the year through February, according to the latest CoreLogic Home Price Index Report. “As the spring home-buying season kicks off, house price appreciation continues to be strong,” says Mark Fleming, CoreLogic’s chief economist.
Maybe so, but homebuilding has softened lately, suggesting that the housing market’s recovery may be headed for a rocky transition into middle age. Housing starts slipped for the third month in a row through February, although analysts say that a harsh winter is the source of the weakness rather than a cyclical headwind. That theory will face new scrutiny when the March update on housing starts is published next week.
Meantime, today’s weekly update on new mortgage applications will provide a fresh look at demand for housing. The main risk factor for real estate is rising mortgage rates. For now, rates have remained fairly stable, with the 30-year national average sticking in the mid-four-percent range over the past month. Nonetheless, mortgage applications have posted mild retreats in the past two weekly updates, albeit after a mid-March surge. It’ll be interesting to see how today’s numbers stack up, in part to test the idea that home buying will strengthen with the arrival of warmer weather.
US Fed FOMC Minutes (18:00 GMT): The labour market’s trend has improved, according to recent data. Non-farm payrolls in February and March increased at a rate well above January’s sluggish pace. Meanwhile, the four-week moving average of initial jobless claims has been trending down over the past month, falling to its lowest level recently since September 2013. There are also upbeat signs from elsewhere in the economy, including ongoing signs of expansion in the manufacturing and services sectors, according to the latest ISM survey data. Are the firmer numbers inspiring the hawks to promote a tighter policy? Although no one expects a dramatic change in the Fed’s stance anytime soon, on the margins there’s a sense of a stronger push to wean the economy off super-easy money.
Economist Tim Duy, a veteran Fed watcher, wrote earlier this month that Fed chair Janet Yellen “and the remaining doves are losing the internal policy battle, leaving policy with a generally overall hawkish tone.” Meanwhile, the recent departure of two FOMC members opens the door for adding some hawks to the mix for future policy votes.
Recall that at last month’s FOMC meeting Yellen said that the central bank could start raising rates in six months after the conclusion of its asset-buying program. But a few days ago she said that the Fed’s “extraordinary commitment” to juicing the labour market will remain in force for some time. Is this a signal that monetary policy will remain easy for longer than implied in last month’s FOMC meeting? Today’s release of minutes for that meeting may provide some clarity, and in the process help the market decide if there really is a slightly more hawkish tone in US monetary policy these days.