Ole Hansen
Commodities have faced a torrid year and there’s no let up in sight warns Saxo’s Ole Hansen. While the price of crude has stabilised this week, Libya and the forthcoming OPEC meeting are keeping up the pressure. Other event risks including the ECB and FOMC meetings are also adding general commodity price pressures, he says.
Article / 27 August 2013 at 5:03 GMT

3 Numbers to Watch: German Ifo, US Case-Shiller & CB sentiment

editor/analyst /
United States

The outlook for Germany’s economy, based on sentiment in the country’s trade and industry sectors, is today’s focus for economic news in Europe via the Ifo Institute.  Later in the trading day, two key US benchmarks are scheduled for updates: the Case-Shiller House Price Index and the Conference Board Consumer Confidence Index.

Germany Ifo Business Climate Index (08:00 GMT): The return of growth in the Eurozone’s second-quarter GDP report (pdf) raises expectations that the second half of 2013 will bring upbeat news. There’s already been some intriguing clues for thinking that the third quarter trend is in fact building on the previous quarter’s modest rebound. Last week’s flash estimate of the Eurozone PMI Composite Output Index for August, for instance, posted the largest increase in more than two years. Not surprisingly, the upturn is being led by Germany, according to Markit Economics (pdf). With that in mind, the market will be keenly focused on today’s Ifo survey, which offers another perspective on the mood among German businesses.

The main attraction is the Business Climate Indicator (BCI), which quantifies the view on current conditions and the outlook for the near term. Based on the last several monthly Ifo updates, however, there’s been minimal improvement in sentiment. Although BCI has increased this year relative to readings in the second half of 2012, the trend so far in 2013 has been one of moving sideways. Will today’s update for August fall in line with the upbeat outlook implied by Eurozone PMI Composite Output Index? Economists think we’ll see a modest rise in BCI to 107 from July’s 106.2, according to Bloomberg’s median estimate from analysts. That’s a step in the right direction, but it still falls short of laying the groundwork for anticipating that Europe’s recovery is poised for something more than modest improvement in the second half.


US Case-Shiller House Price Index (13:00 GMT): Today’s update on house prices, according to this widely followed benchmark, will be closely analysed in the wake of last week’s mixed news on the residential property market. Existing home sales posted a handsome gain in July, but the celebration was muted after the market learned that new home sales suffered a sharp decline last month. The data on prices for July are still a month away, but today’s June upbeat is sure to receive broad attention as the crowd looks for fresh clues on how the pricing trend is holding up amid rising interest rates.

Analysts think we’ll see another round of increases for June prices. The consensus forecast calls for a one percent rise in the monthly comparison for the 20-city home price index and a 12.2 percent gain versus a year ago. Both predictions match the previously reported May increases. That said, the pace for the monthly change in May fell sharply relative to the torrid gains posted earlier in the year. Even under the best of circumstances, it’s inevitable that price gains will moderate. As the housing recovery rolls on, the dramatic increases in value will fade as we move closer to a supply/demand equilibrium in the housing sector. That’s only natural and hardly out of line with previous cycles. Nonetheless, anxiety is elevated these days as the market digests the reality that the price of financing real estate purchases is rising. Higher rates will almost certainly slow the housing recovery, which in turn will impact prices. Details, of course, are open for debate at this point. Much depends on the Federal Reserve and its decisions in the weeks and months ahead with regards to the beginning of the end for quantitative easing. All this will be front and center as the market interprets today’s update on prices for June.


US Conference Board Consumer Confidence Index (13:00 GMT): Higher interest rates seem to be pinching confidence, albeit on the margins. In last week’s preliminary estimate of the University of Michigan Survey of Consumer Confidence Sentiment for August, the mood was a bit less optimistic. A modest retreat is also expected for today’s August report on sentiment from the Conference Board, which publishes a competing benchmark.

The consensus forecast sees today’s index slipping to 78 from July’s 80.3. That’s hardly a catastrophe, although a decline would serve as a reminder that the economic recovery faces new headwinds amid rising interest rates. The main question is how retail spending fares in a world where the price of money is inching higher. It’s reasonable to assume that the pace of consumption will moderate as rates increase. The economy can still expand under these conditions, assuming, of course, that rates are rising because the economy is improving. For the moment, that's still the prevailing view. But there’s a lot of room for short-term volatility as the US economy transitions into a new and somewhat more perilous stage of recovery. As usual, the mood among consumers is the critical variable for looking forward. Accordingly, today’s report is likely to receive a higher level of interest than usual in the current climate.



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