UK Construction, EU PPI, US Factory Orders

Today's update on the mood in Britain’s construction sector will be closely watched for additional evidence that the UK economy’s revival is gaining momentum. Meanwhile, the May report on Eurozone producer prices offers another data point for weighing disinflation/deflation risks. Later, US factory orders will provide a broad measure of the manufacturing sector in May.

Markit/CIPS UK Construction PMI (08:30 GMT): Recent economic reports for Britain have been upbeat and today’s release for the construction sector is expected to bring another round of modestly encouraging news. The overall trend still looks a bit wobbly, but the modest bias for growth across a range of indicators can't be denied. Yesterday's better-than-expected CIPS Manufacturing PMI release, for instance.

Analysing what appears to be a change for the better in the broad trend will no doubt be at the top of the agenda for Mark Carney, who formally took charge of the Bank of England (BoE) this week. Britain's central bank has tolerated consumer price inflation above its two percent target for several years, on the assumption that higher pricing pressures are productive when the economy is weak if not contracting. But with the UK showing persistent signs of moderate growth lately, it’s only natural to wonder if the central bank will continue to let inflation run above target.

Much depends on whether Carney and company are convinced that there’s a sustainable period of growth in the cards for the UK in this year's second half. Today’s release on construction activity for June won't be a definitive signal, one way or the other. That said, another reading above the neutral 50 mark would strengthen the view that residential construction has emerged from its slump and is once again a positive for the economic outlook. If the crowd’s expectation for more good news today pans out, the data is likely to be included in the talking points when Carney chairs his first meeting of policymakers that begins tomorrow.

Eurozone Producer Prices (09:00 GMT): Is disinflation/deflation risk strengthening? That’s a debatable topic at the moment, thanks to the recent news that consumer prices reversed course in yesterday’s flash estimate for June. Eurozone prices inched higher on an annual basis for the second time in as many months to 1.6 percent. That eases any immediate fears about disinflation/deflation, although the market will be keenly interested in learning if today’s report on industrial prices for May offers a similar narrative.

The annual rate of producer prices slipped into negative territory in the previous release, although analysts think we’ll see outright deflation ease a bit with the May year-over-year rate moving closer to zero. In that case, the darkest fears about deflation will ease. But any celebration will be muted. A relatively stable run in overall pricing, if in fact that’s what we now have, is certainly welcome at this stage. Unemployment keeps rising, however. Eurostat reported yesterday (pdf) that the jobless rate for the Eurozone inched higher again, touching 12.1 percent in May—another record high. Disinflation/deflation may no longer be a pressing threat, but the recession in Europe overall rolls on. With that in mind, a downside surprise in today's PPI report would raise new questions about the notion that inflation is stabilizing.

US Factory Orders (14:00 GMT): Today’s report may receive more attention than usual as the market looks to the hard data for insight into how the manufacturing sector is holding up. Last week’s upbeat release on new orders for durable goods for May suggests that the full report for all manufacturers will follow suit. The consensus forecast sees a two percent rise for factory orders overall, or twice as strong as April’s gain.

Manufacturing activity has been sluggish lately, although yesterday’s news of a stronger-than-expected return to modest growth in the June ISM Manufacturing implies that this corner of the economy will continue to expand through the summer. That was also the message in the flash estimate of the June Manufacturing PMI data. A decent rise in today’s report on factory orders, which is likely, would further strengthen the view that the recent weakness in manufacturing was noise and not an ominous signal for the business cycle.