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Article / 19 July 2016 at 5:01 GMT

3 Numbers: Buoyant Germans may see a July sentiment slide

editor/analyst /
United States
  • A tumble projected for Germany’s ZEW expectations index in July report
  • US housing starts are on track to tick higher in June as sentiment rises
  • Debate goes on as to whether crude oil’s 2016 rally has run out of fuel

By James Picerno

Germany’s economy is in focus today with the monthly update of the ZEW economic survey numbers for July. Later, the June update on residential housing construction for the US is scheduled for release. Meantime, traders will be monitoring crude oil prices for deciding if the rally in the first half of 2016 has hit a wall.

Germany: ZEW Economic Sentiment (0900 GMT) Is Brexit blowback a threat to the German economy? The Bundesbank thinks not.

“The fundamental trend remains quite strong and economic output is expected to significantly increase during the summer quarter,” the central bank advised yesterday in its monthly report.

“The driving factors of the domestically supported upswing remain intact, including the excellent labor market, rising real wages and an expansionary fiscal policy. The continued favorable business and household sentiment suggests a purely temporary breather in the second quarter.”

Today’s update on sentiment via Germany’s financial quarter will provide a reality check for the central bank’s optimism.

Recent data has been uneven, although signs of an upswing appear to be in progress. The index tracking current conditions ticked higher in June, rising to the highest reading since January. The expectations benchmark also bounced higher, reaching a 10-month high.

Not there yet: Germans aren't quite celebrating but the right factors are in place. Photo: iStock

But the crowd’s expecting a modest reversal in today’s July report. The current conditions index is on track to ease to 52.0, according to’s consensus forecast.

A deeper reversal is projected for the expectations data, which is on track to tumble to 9.5, a sharp drop from June.

“Germany’s business outlook has darkened since the February survey, as uncertainties surrounding the Brexit vote and the US presidential elections in November pose threats to economic growth,” an economist at Markit Economics noted last week.

“Nonetheless, companies predict overall business activity to rise over the next year.”

Perhaps, but today’s ZEW release isn’t expected to provide strong support for thinking positively.

US: Housing Starts (1230 GMT) Confidence in the home building industry ticked lower in July - the first decline in five months - but the unexpected slide still leaves sentiment close to the highest level of the year.

“For the past six months, builder confidence has remained in a relatively narrow positive range that is consistent with the ongoing gradual housing recovery that is underway,” said the chairman of the National Association of Home Builders (NAHB), the group that publishes the survey.

NAHB’s chief economist added that “the economic fundamentals are in place for continued slow, steady growth in the housing market".

He noted in yesterday's press release that “job creation is solid, mortgage rates are at historic lows and household formations are rising. These factors should help to bring more buyers into the market as the year progresses”.

Economists are expecting more upbeat news by way of today’s June report on residential housing construction.’s consensus forecast sees starts rising to 1.170 million units in seasonally adjusted terms. If so, construction activity will tick up to a four-month high and post the first month-on-month improvement since February.

Nonetheless, even if today’s forecast holds, housing starts will remain in the narrow range that’s prevailed for the past year. As such, the NAHB’s outlook for a “gradual” recovery may be due for a downgrade to reflect a housing market that’s flat-lining.  

Crude Oil: The price of oil has enjoyed a strong recovery this year, but the trend has turned wobbly in recent weeks, raising new questions about the outlook for the second half of 2016.

The price of Brent crude had been trending higher in 2016 through early June, lifting the 50 Day moving average above the 200 DMA in mid-May for the first time in nearly two years.

But the bullish momentum has subsided over the past month. Brent’s price has been trading below its 50-day average for over a week, suggesting that prices are vulnerable to further declines in the remaining weeks of the summer and perhaps beyond.

But some analysts remain bullish. Ed Morse, a widely read energy analyst at Citigroup, advised in a research note that “the oil market is treading water for now, but the oil price overshot to the downside earlier this year and this is clearly setting the stage for a bullish end to the decade”.

Perhaps, but any rally will face a ceiling at around $70/barrel, according to a veteran petroleum geologist. “Two years into the global oil price collapse, it seems unlikely that prices will return to sustained levels above $70 per barrel any time soon or perhaps ever,” Arthur Berman wrote at last Friday. “That is because the global economy is exhausted.”

For the near term, keep your eye on Brent’s price relative to the 50-day average. If Morse’s bullish spin is accurate, we’ll probably see crude recover lost ground against the 50-day average. Otherwise, gravity’s pull will grow stronger.

Weekly Brent Crude price


-- Edited by Adam Courtenay

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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