Article / 10 October 2016 at 4:59 GMT

3 Numbers: German exports in focus after July’s plunge

editor/analyst /
United States
  • Germany’s foreign trade report to be closely read after sharp slide in July’s exports
  • Will Eurozone investor sentiment continue to revive in today’s update from Sentix?
  • CB Employment Trends Index offers deeper review of US payrolls in September

By James Picerno

The German economy is in focus today with the August update on foreign trade. We’ll also see October data for the Sentix Investor Confidence Index for the Eurozone. US markets are closed for the Columbus Day holiday, although the Conference Board's release schedule still lists the September report for the US Employment Trends Index for Monday.

 Recent data paints a relatively upbeat picture for today's release
of Germany's trade numbers. Photo: iStock

Germany: Foreign Trade (0600 GMT) Germany has the world’s biggest trade surplus, but recent data suggests the trend may be reversing. Indeed, July’s exports fell sharply, leaving the year-on-year comparison in the red by 10% (in unadjusted terms). The decline marked the biggest annual setback for Europe’s exporting machine in seven years.

It’s unclear if the July data is a short-term anomaly triggered by Brexit worries or an early sign of a change in the global appetite for Germany’s goods and services. Recent data, however, paints a relatively upbeat profile. Industrial production rebounded strongly in August, rising 2.5% on the month and bouncing back to a 1.9% gain for the annual pace after contracting previously.

Meanwhile, sentiment for German manufacturing activity picked up in September, according to the latest PMI release. “Germany’s manufacturing sector ended the third quarter on a positive note,” an economist at HIS Markit said last week. “Not only did companies scale up their production volumes in order to satisfy rising demand, but with conditions in the sector improving, they also added to their payrolls at a pace not seen since the start of 2012.”

Is that a clue for thinking that today’s trade report for August will deliver stronger export numbers for Germany? Stay tuned.
Eurozone: Sentix Investor Confidence Index (0830 GMT) Europe’s summer slowdown may be regaining momentum in the autumn, according to the latest nowcasts for third-quarter GDP.’s revised estimate for Eurozone growth in Q3 ticked up to 0.3% quarter-on-quarter in Friday's update, regaining the lost ground over the past two months that left the forecast near 0.2% in late-August. A 0.3% advance is still a relatively sluggish pace. But if the official Q3 GDP report matches the estimate, the gain will at least hold steady vs. Q2’s increase.

Meanwhile, let’s not rule out the possibility for something a bit better. Another GDP estimate for the Eurozone ticked up to 0.34% in the September update for the Bank of Italy’s Euro-Coin Indicator. This monthly estimate of quarter-over-quarter changes in output is now at its highest rate since March.

Markit’s Eurozone Composite PMI figures through September also translate into an expected 0.3% rise for Q3 GDP. But there’s some downside risk in the latest report. “While the PMI surveys suggest the Eurozone economy continued to grow at a 0.3% rate in the third quarter, there are signs that momentum is waning,” the chief economist at IHS Markit advised.

Another perspective on what lies ahead may be found in today’s investor sentiment update for the Eurozone in September via Sentix. Note that the Investor Confidence Index rebounded modestly in August and September after a sharp setback in July in the wake of the Brexit vote. 

Another round of recovery in today’s October update will reassure the crowd that Eurozone GDP growth will continue to print at 0.3% when Eurostat publishes the flash Q3 estimate next month.

US: CB Employment Trends Index (1400 GMT) US payrolls grew at a modest rate in September, the Labor Department reported last week. The 156,000 increase in nonfarm payrolls was the smallest since May, but growth at that pace is enough to keep the low jobless rate steady.

Is that enough to warrant an interest rate hike before the end of the year? It’s premature to discount the possibility, or so a Fed official suggested in an interview on Friday.

Cleveland Fed President Loretta Mester told CNBC on Friday that the September employment gain is “a solid labour market report.” A current voting member of the Federal Open Market Committee, she added that “this is very consistent with what we expected to see”, explaining that job gains in the 75,000 to 120,000 range is sufficient to maintain the current 4.9% unemployment rate, which is close to the lowest level since the recession ended in 2009.

Fed fund futures are pricing in low odds that the central bank will squeeze monetary policy at next month’s meeting, although December is in play. CME data reflects a 65% probability that the Fed will push its target Fed funds rate higher in the final month of this year.

Meantime, today’s update of the Employment Trends Index (ETI) will offer more context for evaluating the labour market’s strength. Although US markets are closed today for the Columbus Day holiday, the Conference Board's schedule still lists an ETI update for Monday. Could it be delayed until Tuesday? Perhaps. 

In any case, note that the year-on-year trend for this multi-factor benchmark has been easing this year, falling to the second-lowest reading in August for the past 12 months. Another dip in the index may convince the crowd to pare expectations for a December rate hike. 

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– Edited by Gayle Bryant

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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