3 Numbers: Eurozone industrial output set to rebound in August
- Industrial activity in the euro area on track to revive after a hefty decline in July
- Will US job openings continue to support optimistic outlook for labour market?
- Rising US 10-year Treasury yield hints at possibility of a Fed rate hike this year
to show a solid rebound. Photo: iStock
Eurozone: Industrial Production (0900 GMT) The autumn outlook for industrial activity in Europe is looking a bit brighter these days. Sentiment data for the manufacturing sector is one clue. The Eurozone Manufacturing PMI ticked up to 52.6 in September after easing in each of the two previous months.
This week’s upbeat data for Europe’s biggest economy doesn’t hurt either. German exports posted a strong rebound in August after slumping in the previous month. Yesterday’s monthly report on business sentiment for October via the ZEW survey looks encouraging as well. “The improved economic sentiment is a sign of a relatively robust economic activity in Germany,” said ZEW’s president.
Meanwhile, next month’s flash release for third-quarter Eurozone GDP is expected to hold steady at a 0.3% quarterly rate, according to last week’s estimate from Now-casting.com. Even better, the Q4 projection is currently tracking at a slightly higher 0.4%. Although growth is still expected to remain sluggish relative to Q1’s firmer 0.5% gain, recent updates hold out the possibility for a modest acceleration for Europe’s broad trend during the final months of the year.
Today’s August report on industrial activity is expected to provide fresh data for thinking positively. Econoday.com’s consensus forecast sees output rising 0.7% for the monthly comparison, which represents a solid rebound after July’s 1.1% slide. If the forecast holds, the news will strengthen the view that the macro trend is picking up after a summer of wobbly data.
In contrast to LMCI’s mildly negative bias, the Conference Board’s broad-minded measure of the labour market – the Employment Trends Index – anticipates a relatively upbeat forecast. The modest increase in the September reading “suggests moderate job growth through the first quarter of 2017", an economist at the consultancy said on Monday. “Despite the recent declines in corporate profits, employers are not showing any signs of reducing payrolls.”
Today’s survey numbers from the Labor Department offer another perspective. The government’s estimate of job openings have been rising in recent history and the crowd will be eager to learn if the upswing continued in August. Note, however, that the hard data on nonfarm payrolls has been trending down over the past two years, albeit modestly so – in contrast with the upswing in openings over that span.
The question is whether the bullish trend in job openings is living on borrowed time? The deceleration in growth for payrolls suggests as much. Alternatively, another rise in openings will signal that job growth may improve in the months ahead. In any case, one of these indicators is due for a correction. Will today’s update offer a clue on which data set is headed for a statistical comeuppance?
The latest jump in yield follows comments earlier in the week by Chicago Fed President Charles Evans, who left open the door for squeezing policy this year. “December could be an appropriate time to do it, but I don't see any urgency either,” he told CNBC on Monday.
Fed fund futures, meanwhile, continue to project a roughly 70% probability of a rate hike at the December Federal Open Market Committee meeting. By contrast, next month’s scheduled policy announcement is priced at a thin 10% probability, based on CME data.
Meanwhile, the latest jump in rates may have more room to run. “Central banks are close to dialling down accommodation so bonds look more vulnerable at such low yields,” observed the chief investment officer at the United Nations Federal Credit Union in New York. “Economic growth is steady if not fantastic globally, and the elements for inflation to pick up are increasingly in place.”
The Treasury market appears slightly more inclined to agree at the moment. Or is the latest increase just more noise in a range-bound market? It’s unclear at the moment, but a new phase of attitude adjustment could be lurking if the 10-year yield can climb above the 1.90% mark that’s acted as a ceiling since May.
– Edited by Gayle Bryant