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Article / 12 October 2016 at 5:00 GMT

3 Numbers: Eurozone industrial output set to rebound in August

editor/analyst / CapitalSpectator.com
United States
  • 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

By James Picerno

Europe’s industrial sector is in focus today with the August update on output for the countries that use the euro. We’ll also see the August numbers on US job openings. Meanwhile, the crowd will be closely monitoring the 10-year Treasury yield after this benchmark rate touched a four-month high at one point in yesterday’s trading.

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 Keeping busy ... today's Eurozone's industrial activity data is expected
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. 

Although the pace of growth remains modest, the PMI is holding comfortably above the neutral 50 mark. “The PMI points to production rising at a steady 2% annual pace in the third quarter, with momentum picking up in September,” the chief business economist at IHS Markit advised last week.

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.

ez.indpro.12oct2016
 
US: Job Openings & Labor Turnover Survey (1400 GMT) The Federal Reserve’s Labor Market Conditions Index (LMCI) remained negative for a second month in a row in September. Other than a shallow rise into positive territory in July, this multi-factor benchmark has been printing at below-zero readings all year.

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?

us.jolts.12oct2016
 
US: 10-Year Treasury Yield Speculation that the Federal Reserve remains on track to raise interest rates before the end of the year lifted the benchmark 10-year yield to a four-month high of 1.78% at one point in Tuesday’s trading.

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.

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– Edited by Gayle Bryant

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

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