The monthly trade data is the main event for economic releases in Europe today, although the tortured subject of Greece will dominate the headlines as Grexit risk ticks higher. The trading week kicks off as the prospects for a grand bargain appear to be slipping away.
“Lenders are signalling in ever more ways . . . that they do not intend to blink," noted
the chief economist at Berenberg Bank. In turn, the guesswork continues
with the critical question of what the growing chasm between Greece and
the Eurozone means for the future of the currency union?
In
any case, the numbers will continue to roll out, including two US
reports that will sharpen the focus on the outlook for the economy:
industrial production for May and this month’s update on home-builder
sentiment based on survey data from the National Association of Home
Builders.
Today's international trade figures will show whether exports are continuing to
support the Eurozone’s recovery. Photo: iStock
support the Eurozone’s recovery. Photo: iStock
Eurozone: International Trade Balance (09:00 GMT) Andrew Parry of Hermes Investments recently advised that Europe’s rebound of late has less to do with a weak euro as a boost to exports vs. higher consumer spending.
"In
the first quarter of this year, it was better-than-expected consumer
spending, not exports, which drove the improvement in the Eurozone’s GDP
growth," he explained last week. “It is important not to place too much
confidence in the weakness of the euro as the prime driver of higher
demand. The European economy has enough positives to herald a strong
recovery even without an ever-falling exchange rate.”
A weak euro certainly doesn’t hurt, but if Parry’s right, his analysis is good news for Europe if the euro’s decline has run its course. That’s a reasonable assumption at the moment. EURUSD, after trending lower for nearly a year through this year’s first quarter, has stabilised in 2Q, sticking to the roughly 1.05-to-1.15 range since mid-March. Grexit risk could change the outlook, depending on what unfolds in the weeks ahead. But for at present, EURUSD looks rangebound.
Meanwhile, Now-casting.com continues to project second-quarter GDP growth for the Eurozone of 0.5%, up from 1Q’s 0.4% rise. The recovery, although still modest, remains on track.
An additional boost by a net gain in exports would sweeten the deal, but don’t count on it. The total trade balance for the Eurozone has been slipping lately in seasonally adjusted monthly terms. Is that a sign that the recent burst of growth from exports has peaked? More importantly, does it matter if the easy gains from higher exports have faded?
US: Industrial Production (13:15 GMT)
The macro outlook looks rather grim based on headline industrial
activity. Output has fallen for five straight months through April,
according to the Federal Reserve’s data. The slide is the longest run of
declines since the recession ended in 2009. The good news is that the
numbers we’ve seen since the last release on industrial output paints a
considerably brighter outlook.
Last week’s strong rebound in retail sales for May, for instance, suggests that the economy is stronger than it appears by way of industrial activity. The labour market continues to post upbeat figures too. Perhaps, then, it’s no surprise that the Atlanta Fed’s widely read GDPNow estimate for the second quarter jumped last week to an expected 1.9% gain. Meanwhile, Macroeconomic Advisers raised its Q2 GDP forecast to 2.5 percent.
The brighter outlook has boosted expectations for today’s report on industrial production for May. The crowd’s looking for a 0.2% monthly gain, according to Econoday.com’s consensus forecast. It’s still premature to project much more than modest growth for the US economy, but it’s becoming increasingly clear that the broad trend is stronger than it appeared just a month earlier – a viewpoint that will likely be strengthened in today’s report on industrial activity for last month.
US: Housing Market Index (14:00 GMT)
Is last week’s surge in demand for mortgage applications an early clue
that the housing market is poised for a run of stronger growth in this
year’s second half? Perhaps, although a darker interpretation is that
the 8.4% weekly rise (seasonally adjusted) for the first week of June is
a desperate effort by consumers to lock in attracting financing ahead
of higher interest rates.
Last week’s rise in the average rate of a 30-year fixed-rate mortgage to 4.04% from 3.87% in the previous week is the biggest jump since last fall, based on numbers published by Freddie Mac. The latest rise leaves the average mortgage at the highest rate in six months.
It’ll be interesting to see how today’s sentiment index for the home-building industry compares. Although residential housing construction jumped sharply in April, there was no follow-through in terms of builder confidence in May.
A weak euro certainly doesn’t hurt, but if Parry’s right, his analysis is good news for Europe if the euro’s decline has run its course. That’s a reasonable assumption at the moment. EURUSD, after trending lower for nearly a year through this year’s first quarter, has stabilised in 2Q, sticking to the roughly 1.05-to-1.15 range since mid-March. Grexit risk could change the outlook, depending on what unfolds in the weeks ahead. But for at present, EURUSD looks rangebound.
Meanwhile, Now-casting.com continues to project second-quarter GDP growth for the Eurozone of 0.5%, up from 1Q’s 0.4% rise. The recovery, although still modest, remains on track.
An additional boost by a net gain in exports would sweeten the deal, but don’t count on it. The total trade balance for the Eurozone has been slipping lately in seasonally adjusted monthly terms. Is that a sign that the recent burst of growth from exports has peaked? More importantly, does it matter if the easy gains from higher exports have faded?
Last week’s strong rebound in retail sales for May, for instance, suggests that the economy is stronger than it appears by way of industrial activity. The labour market continues to post upbeat figures too. Perhaps, then, it’s no surprise that the Atlanta Fed’s widely read GDPNow estimate for the second quarter jumped last week to an expected 1.9% gain. Meanwhile, Macroeconomic Advisers raised its Q2 GDP forecast to 2.5 percent.
The brighter outlook has boosted expectations for today’s report on industrial production for May. The crowd’s looking for a 0.2% monthly gain, according to Econoday.com’s consensus forecast. It’s still premature to project much more than modest growth for the US economy, but it’s becoming increasingly clear that the broad trend is stronger than it appeared just a month earlier – a viewpoint that will likely be strengthened in today’s report on industrial activity for last month.
Last week’s rise in the average rate of a 30-year fixed-rate mortgage to 4.04% from 3.87% in the previous week is the biggest jump since last fall, based on numbers published by Freddie Mac. The latest rise leaves the average mortgage at the highest rate in six months.
It’ll be interesting to see how today’s sentiment index for the home-building industry compares. Although residential housing construction jumped sharply in April, there was no follow-through in terms of builder confidence in May.
The implied message is that the housing market’s set to accelerate. If so, we’ll see an early clue in today’s June update of HMI data. In fact, that's what the crowd's anticipating. Econoday.com's consensus forecast sees HMI rising to 56 this month, up two points from May.
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