3 Numbers to Watch: German PMI, UK retail sales, US PMI
Thursday brings a wave of new economic numbers for Europe and the US, including the June flash estimate of the Eurozone manufacturing purchasing manager index (PMI) and the CBI Industrial Trends Survey for Britain. For the US, existing home sales and the Conference Board’s update of its index of leading indicators will be carefully reviewed. Three other numbers that deserve close attention: the initial estimates of June PMI data for Germany and the US, plus UK retail sales for May. Here's a preview of this trio:
German Manufacturing PMI (07:28 GMT): The market will be keenly watching today’s report for signs that manufacturing revived in June. After sentiment slumped below the neutral 50 mark in March and April, the May data rebounded, albeit near the razor’s edge between growth and contraction. Today’s update is expected to inch higher but still leave the manufacturing PMI just under 50 for the fourth straight month.
This wouldn’t be the first survey data that suggests Germany is at risk of getting stuck in a gray zone that evades recession but without showing decisive signs of expansion. Tuesday’s June update of the ZEW survey of financial analysts, for example, anticipates that the economy will improve in this year’s second half, but at a relatively sluggish rate. Today’s PMI report will probably deliver a similar diagnosis.
UK Retail Sales (08:30 GMT): Today’s update will test the idea that the British economy is stabilising. Sentiment has certainly improved lately. Markit’s PMI numbers for both the services and manufacturing sectors have turned higher in recent months and both point to stronger growth ahead. Is the hard data for retail sales set to follow? Yes, according to the consensus forecast, which sees spending in May ahead by 0.8 percent versus the previous month. If so, that would represent a substantial rebound after the hefty 1.3 percent decline in April, the deepest monthly slide in a year. The trend looks all the more encouraging when you consider that the labour market’s healing continues. Indeed, the claimant count (jobless) numbers fell for the fifth time in a row in April, implying that unemployment will decline through the rest of the year.
A healthy rise in today’s retail numbers would further tip the scales in favor of optimism for the macro outlook. But there’s a potential glitch: the recent data on retailing in May from the Confederation of British Industry suggests caution. The group’s Distributive Trades survey for May slumped to negative 11, the lowest in more than a year. In other words, the upbeat forecasts for today's data looks a bit too rosy relative to the mood in the industry.
US Manufacturing PMI (12:58 GMT): The outlook for manufacturing is deeply divided. According to the ISM Manufacturing Index, the sector is contracting. But Markit’s competing PMI numbers beg to differ, reflecting a slower pace of otherwise decent growth through May. One of these indices is wrong and so today’s update will be closely watched for fresh perspective.
Recent history offers a precedent for thinking that the PMI data from Markit offers a superior measure of the trend on a month-to-month basis. Last November, the Markit benchmark continued to point to expansion in the manufacturing sector while the ISM index slipped below 50, implying contraction. But in subsequent months the ISM data revived. Is a repeat performance in the cards? Answering “yes” will get a bit easier if today’s PMI number for June rises over the previous update. In fact, that’s what analysts expect. The consensus forecast sees the flash estimate rising modestly to 52.7 from 51.9 in May. In that case, there's a case for expecting a rebound in the ISM number for June (scheduled for release on July 1).
Note to readers: I’ll be on holiday starting tomorrow and so this will be my last column until I return on Tuesday, July 2. Meantime, you’ll be in the capable hands of my Saxo colleagues. Happy trading! --JP