German ZEW, US House Starts & IND. Production

Today's updates will provide a fresh set of numbers to crunch for thinking about what comes next for macro in Europe and the US. First up is the latest read on sentiment in Germany via the ZEW survey, followed by March data on housing starts and industrial production in the US. Given the wobbly data in America of late, today's US numbers in particular will be of keen interest as the market looks for deeper context for assessing the business cycle.

Germany ZEW Economic Sentiment (09:00 GMT): The outlook for Germany’s economy has improved in recent months, but today’s update is expected to show some collateral damage in the wake of recent news that the Eurozone recession has yet to show convincing signs of easing overall. The contraction is still confined to countries other than Germany, but sentiment is hardly immune to news from across the border.

Economists anticipate a modest pullback for the expectations component in today's ZEW report. A substantial drop, however, would be taken as a sign that Germany’s economy may be more vulnerable than assumed. For now, cautious optimism prevails, in part because recent data for Germany has looked relatively upbeat. Industrial production as of February is still contracting on a year-over-year basis, but output posted a better-than-expected rise on a monthly basis. Factory orders in February did even better, delivering a surprisingly strong gain for the month and elevating the year-over-year comparison to zero for the first time in recent history. The question is whether the trend will continue to improve? Today’s ZEW release will offer a clue and help the market grapple with the uncertainty of Germany’s recovery amid the ill macro winds that are still blowing through Europe.

US Housing Starts (12:30 GMT): The pace of growth for new residential construction has slowed recently and today’s update isn’t expected to break out of this box. Analysts anticipate a modest rise to 930,000 units for March, but yesterday’s retreat in the NAHB Housing Market Index (HMI) suggests that today’s number could disappoint.

HMI fell for the third month in a row in the April reading, which implies that housing starts aren’t likely to rise substantially, if at all. “Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values,” the NAHB chairman noted in a press statement issued with yesterday’s HMI report. “While sales conditions are generally improving, these challenges are holding back new building and job creation.”

Looking out through the end of the year, the recovery is housing probably has room to run further, in large part because favorable demographic trends will keep demand rising. It doesn’t hurt that mortgage rates remain near record lows, at least for those buyers who can secure financing. But the recovery may be suffering from growing pains at the moment, as today’s update will probably show.

US Industrial Production (13:15 GMT): Industrial activity accelerated in February - its largest expansion since November - but a slowdown is expected in today’s update for March. The details will be especially critical in the wake of the economic news to date on March--news that suggests that economic growth has slowed. Today’s industrial production report will be useful for evaluating if the recent reports are in fact a sign of things to come or just short-term noise.

For now, it's too close to call and it's not clear that today's update on industrial production will be all that helpful for clarifying the outlook. The consensus outlook sees a relatively sluggish rise for today’s release, which is in line with a projected 0.3 percent gain in March, based on the average number in my econometric modeling. That compares with February’s upwardly revised 0.8 percent increase. In any case, beware of the risks associated with a downside surprise in today’s number. A disappointing report may take a heavy toll on sentiment after the string of weak reports in recent weeks. All the more so if today’s update on US housing starts (released 45 minutes earlier) falls short of expectations.