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Article / 21 June 2016 at 5:01 GMT

3 Numbers: Germany’s June ZEW sentiment index expected to dip

editor/analyst /
United States
  • Germany’s ZEW economic survey report for June expected to post a mild decline
  • The UK CBI Industrial Trends Index on track to dip ahead of Brexit vote
  • Will Janet Yellen’s testimony alter the outlook for a US rate hike soon?  

By James Picerno

Germany’s economy, and the potential for Brexit-related turbulence, will be in focus today with the release of the monthly ZEW economic sentiment data for June. Later, the Confederation of British Industry publishes new figures for its Industrial Trends Index. We’ll also hear Federal Reserve Chair Janet Yellen’s testimony in Congress today, less than a week after the Fed decided to postpone an interest rate hike.

 Mood swings ... German sentiment is expected to fall this month as
concerns mount over a possible Brexit. Photo: iStock

Germany: ZEW Economic Sentiment (0900 GMT) Is Germany’s economy vulnerable to blowback if the UK votes to leave the European Union? The German Institute for Economic Research (aka DIW Berlin) last week advised that Germany’s economy is vulnerable to headwinds if the UK exits the European Union in Thursday’s referendum. 

“A Brexit would significantly dampen Germany’s economic growth,” said the head of the group’s department of forecasting and economic policy. “The UK is a very important trading partner for Germany, and in this respect we can imagine that next year’s German GDP growth would be roughly half of a percentage point less than it would have been had the UK decided to remain in the EU,” explained Ferdinand Fichtner.

Does the financial community in Germany agree? Today’s survey update from the Mannheim-based Center for European Economic Research (ZEW) will be widely read for a deeper perspective on what the crowd’s thinking. Note that last month’s release offered mixed news. The current expectations data ticked up in May – the first improvement since January. But the expectations index eased, dipping for the first time in three months.’s consensus forecast sees both benchmarks losing ground in June. That’s not surprising, given the rise in anxiety over the upcoming Brexit vote. The only question is whether Brexit worries will pass from a theoretical hazard to a real-world event? Only the British electorate has the answer and everyone’s mum until the results arrive on Friday morning.

UK: CBI Industrial Trends Index (1000 GMT) Brexit fear may be a factor behind the weak performance of British manufacturing in recent months. If so, a vote to remain in the European Union on Thursday may provide some relief. But that implies that if the leave campaign wins, UK manufacturing output will face more headwinds.

The sector was already “subdued” in May, based on last month’s update of the Markit/CIPS UK Manufacturing PMI. A senior Markit economist noted that “there are also signs that increased client uncertainty resulting from slower growth and the forthcoming EU referendum is weighing on investment spending".

Today’s monthly report on the CBI Industrial Trends Orders offers a final pre-Brexit review of Britain’s manufacturing sector. In fact, the release is the last major macro release for the UK before Thursday’s referendum.’s consensus forecast tells us that the final number before the voting begins will post a modest setback. Economists are expecting that the monthly total order book balance is set to dip to a negative 10 reading for June, down from negative 8 in the previous month. That’s still above the lowest levels in recent months, but the forecast is a signal that analysts still anticipate that the British manufacturing sector will remain in recession, at least by this indicator's reckoning.

If there’s any hope for a near-term rebound, the case for optimism probably relies on Thursday’s Brexit vote, namely, a victory for the remain campaign.

Fed Chair Janet Yellen Testimony (1400 GMT) Two Federal Reserve banks are projecting that US GDP growth in the second quarter will rebound after Q1’s weak 0.8% increase. The market will be listening closely to Janet Yellen’s testimony in Congress today for clues about the central bank’s expectations for raising interest rates ... or not.

Last week, the Fed decided to postpone monetary tightening, which looked like a forgone conclusion before the surprisingly soft May employment report shifted the game plan. But in the wake of firm projections for Q2 growth, will Yellen’s remarks today put a rate hike possibility back on the table?

Judging by the Atlanta Fed’s latest GDPNow estimate, there may be a rate hike around the next bend after all. On Friday, the bank announced that its widely followed forecast is looking for GDP to increase 2.8% in Q2 (seasonally adjusted annual rate). If the guesstimate holds, US output will rise at the fastest rate in a year. If so, the news will minimise concerns that the economy is stumbling.

The New York Fed’s nowcast is softer, anticipating Q2 GDP growth of 2.0%. But that’s still more than double Q1’s tepid rise. It's also high enough to suggest that the sharp slowdown in payrolls growth last month was a one-off event.

With forecasts for a rebound in place, today’s focus is on Yellen’s comments. Will her remarks provide additional aid and comfort for thinking positively about the macro outlook?


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– Edited by Gayle Bryant

James Picerno is s 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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