Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 23 September 2015 at 4:58 GMT

3 Numbers: Slight retreat for EU composite PMI, US mortgages, US PMI

editor/analyst /
United States
  • Today’s Eurozone PMI data offers an early look at the September macro profile
  • US mortgage applications to be closely read after recent stumble in housing sales
  • US manufacturing PMI report likely to tick higher but Fed bank data raises doubt

By James Picerno

Wednesday provides a wide assortment of early clues for assessing the macro profile in September on both side of the Atlantic. The line-up of flash purchasing managers’ indexes on tap today includes new numbers for the Eurozone Composite and US manufacturing benchmarks. 

We’ll also see new weekly numbers on US mortgage applications, which may provide a useful perspective after the latest downside surprise in the August report for existing home sales.

 Employment hits home ... US jobs growth is positive, which suggests
the outlook for housing activity remains bright. Photo: iStock

Eurozone: Composite PMI (0800 GMT) An early big-picture look at Europe’s macro trend in September arrives with today’s flash data on sentiment for the manufacturing and services sector.

Markit Economics will also publish this month’s preliminary figures for its composite purchasing managers’ index, which aggregates numbers from both sectors. If there’s trouble brewing from the recent turbulence in global markets, triggered by China’s currency devaluation last month, we’ll probably see the tell-tale signs in today’s PMI figures.

In fact, the crowd’s looking for a slight retreat, although’s consensus forecast for a dip in the composite benchmark to 53.9 for this month from 54.1 in August is hardly a smoking gun.

Meanwhile, Berenberg’s September 18 outlook for the Eurozone noted that weakness in emerging market economies is a risk factor, although the boost from cheap energy and a weaker euro offers a tailwind that will offset most of the external pressures. As a result, the bank expects only a fractional downtick in third-quarter GDP growth for the euro area: 0.3% vs. the previously reported 0.4% for Q2 (quarter-over-quarter rate).’s current estimate for Q3 expects something closer to 0.4%.

A major downside surprise in today’s PMI data would, of course, imply that forecasters have been too optimistic. In turn, disappointing news would boost the odds that the European Central Bank will enhance its current monetary stimulus program to juice inflation and growth. 

But based on the current consensus view, the slowdown in global growth is expected to have a limited impact on Europe’s recovery. Let's see if today's PMI numbers agree.

US: Mortgage Applications (1100 GMT) Existing home sales dropped nearly 5% in August vs. the previous month – the biggest setback since January. The slide surprised economists who were expecting a softer decline. Is this a signal that the housing market’s recovery is crumbling?

No, at least not yet. Despite the latest monthly decrease, sales for last month are ahead by a solid 6.2% vs. the year-earlier level. Although the annual pace ticked lower in the latest update, it’s not obvious that this is more than short-term noise. “Even with the decline, I believe we are comfortably set for the best home-sales year in eight years,” said the chief economist at the National Association of Realtors, the group that publishes these numbers.

But if that rosy outlook is overly optimistic, we may see the evidence in today’s weekly update on mortgage applications. The appetite for real estate transactions has been slipping lately, according to data from the Mortgage Bankers' Association. For the second week in a row, new applications for mortgages fell sharply. As a result, the trend for the last three months has turned slightly negative (dotted red line in chart below).

Nonetheless, with US job growth still posting a moderately positive trend, the outlook for housing activity remains bright. Another round of weakness in today’s weekly release, however, will strengthen the view that housing’s near-term growth prospects will be modest at best.

US: Manufacturing PMI (1345 GMT) The US manufacturing sector remains weak and is getting weaker, according to three regional Fed bank reports for September. The trio of updates for September published to date show a clear downside bias, including yesterday’s update from the Richmond Fed.

Is the negative trend via the Fed figures a clue for expecting trouble in today’s flash September estimate for Markit’s purchasing managers’ index for manufacturing? No, or so’s consensus forecast suggests. In fact, the crowd’s looking for an incremental gain to 53.1 for this month’s preliminary reading, up from 53.0 in August.

If the projection holds, today’s update will show that manufacturing is still growing at a moderate rate, albeit at a relatively subdued pace compared with recent history. The key headwinds are a stronger dollar, a sharp reduction in demand from energy-related business, and weaker growth abroad. 

Despite those problems, the US manufacturing sector is muddling through the turbulence and today’s outlook for PMI data isn’t expected to challenge that relatively upbeat view. Then again, the numbers from the Fed bank indices suggest that a downside surprise is a distinct possibility.

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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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